Introductory Context
"This topic presents two complete election result strangle trades: the Lok Sabha 2019 results trade and the Lok Sabha 2024 results trade. Both trades use the complete entry timing framework, the required move analysis, the strangle vs straddle decision, and the post-event exit management. The 2019 trade was straightforwardly profitable. The 2024 trade demonstrates the management complexity when the event produces a sharp intraday move that partially reverses by the close. "
Trade 1 - Lok Sabha 2019 Results Strangle
Background: the 2019 Lok Sabha election counting was on May 23, 2019. Exit polls (published on May 19-20, 2019, after market close) projected a substantial BJP majority -- significantly more than the pre-election consensus. The exit poll announcement caused Nifty to gap up 1.2 percent on May 20 (the next trading day after exit polls) to approximately 11,900, from 11,756.
Entry: May 8, 2019 (two weeks before results, before exit polls). Nifty at approximately 11,600. India VIX at approximately 19.5 (elevated from the pre-election uncertainty but not yet at peak). ATM strike: 11,600. Strangle structure: buy 11,900 CE (2.59% OTM) at Rs 68. Buy 11,300 PE (2.59% OTM) at Rs 52. Total strangle cost: Rs 120 per unit. Per lot (75 units): Rs 9,000. Required move from ATM: (OTM distance 300 points) + (strangle cost 120 points) = 420 points (3.62% of 11,600) for the upper break-even. Lower break-even: 11,300 - 120 = 11,180 (3.62% below the ATM). Monthly expiry: May last Tuesday (May 28, 2019 -- 5 days after the results day of May 23).
Pre-event management (May 8 to May 19): Nifty traded between 11,400 and 11,900 with VIX rising from 19.5 to approximately 26 by May 19. Vega gain: straddle/strangle vega approximately Rs 14 per unit per VIX point x 6.5 VIX points = Rs 91 gain. Theta cost over 11 sessions: approximately Rs 8-9 per day = Rs 88 to Rs 99. Net pre-exit-poll change: approximately flat (vega gain offset theta cost). Strangle value on May 19 (day of exit polls): approximately Rs 135 per unit.
Exit poll impact (May 20 morning): Nifty gapped up to approximately 11,900 on exit poll strength. The 11,900 CE moved ATM. Strangle value: 11,900 CE now ATM worth approximately Rs 185 (high VIX pre-expiry premium) + 11,300 PE now deep OTM worth approximately Rs 25. Total strangle value: Rs 210. P&L relative to original Rs 120 cost: Rs 90 per unit gain. Decision: hold through results (the exit polls are not the final outcome -- VIX remains high ahead of May 23 results day).
Results day (May 23, 2019): BJP won a decisive majority (303 seats -- more than the exit poll projection of 282). Nifty gapped up further to approximately 12,000 then reached an intraday high of approximately 12,041 before settling at 11,945. The 11,900 CE: ITM by Rs 45 (11,945 - 11,900), value approximately Rs 85 (intrinsic Rs 45 + time value with VIX now falling sharply from 26 to 18). The 11,300 PE: deeply OTM, value approximately Rs 8. Total strangle value at close: Rs 93. Original cost: Rs 120. Loss relative to entry: Rs 27 per unit. Wait -- the exit poll gain was Rs 90, but VIX crush after definitive results reduced the values. The correct P&L calculation uses the cost relative to the current value. Since the strangle was not exited at the exit poll stage and VIX crushed sharply after definitive results, the position recovered partially but not fully.
Exit on May 24 (day after results): Nifty consolidated at approximately 11,850. VIX had fallen further to approximately 15. 11,900 CE worth approximately Rs 48. 11,300 PE approximately Rs 5. Total strangle value: Rs 53. P&L: (Rs 53 - Rs 120) x 75 = -Rs 67 x 75 = -Rs 5,025 loss per lot. The strangle was not profitable because: (1) the 3.7 percent Nifty move on results day was above the 3.62 percent upper break-even in terms of intraday high (Rs 12,041 vs Rs 11,900 + Rs 120 = Rs 12,020) but the intraday move did not hold to close, (2) the massive VIX crush from 26 to 15 eroded Rs 154 of time value.
The 2019 Exit Poll Lesson -- Exit at Exit Polls, Not at Results
The 2019 strangle demonstrates a critical exit lesson: exit at the exit poll stage (May 20) when the strangle was showing Rs 90 per unit gain (75 percent of the Rs 120 original cost in additional profit), rather than holding through the official results (May 23) where the definitive outcome produced massive VIX crush. Exit polls create a preliminary directional move with high remaining time value and elevated VIX. Results day collapses VIX even if the direction confirms. The correct exit strategy for election straddles and strangles: exit at exit polls if the position shows 50 percent or more gain. Do not hold for the results-day outcome.
Trade 2 - Lok Sabha 2024 Results Strangle
Background: the 2024 Lok Sabha election counting was on June 4, 2024. Exit polls (published June 1, 2024) projected a very large BJP majority (350+ seats). Market participants bought aggressively on exit poll news. Nifty reached 23,400 on June 3 (the last trading day before counting, after gap-up from exit polls). Counting began June 4.
Entry: May 20, 2024 (15 days before results). Nifty at approximately 22,400. India VIX at approximately 18.5 (pre-election build-up had begun). Strangle: buy 23,200 CE (3.57% OTM) at Rs 95. Buy 21,600 PE (3.57% OTM) at Rs 72. Total strangle cost: Rs 167 per unit. Per lot (75 units): Rs 12,525. Required move from ATM for upper break-even: OTM distance Rs 800 + strangle cost Rs 167 = Rs 967 (4.31% of 22,400). Lower break-even: 21,600 - 167 = 21,433.
Exit poll impact (June 3, after exit polls): Nifty at 23,400 with exit polls projecting 350+ BJP seats. 23,200 CE: ATM (now ITM by Rs 200), value approximately Rs 320. 21,600 PE: very far OTM, value approximately Rs 12. Strangle value: Rs 332. P&L vs Rs 167 entry: Rs 165 gain per unit. At this point, the correct action per the exit-poll exit rule: exit the strangle at Rs 332. P&L per lot: Rs 165 x 75 = Rs 12,375. Return: 98.8 percent in 14 sessions. (This exit was taken based on the exit-poll exit rule -- the narrative continues to show what would have happened if held.)
If held through June 4 (actual results day): BJP won 240 seats -- far below the exit poll projection of 350+. Nifty crashed 5.9 percent intraday (from 23,400 to approximately 22,000) on the shock of the unexpected shortfall versus exit poll projections. By late recovery, Nifty closed at approximately 22,500 (still down 4% from the exit-poll high). The 23,200 CE became worthless (23,200 strike, Nifty at 22,500 -- deeply OTM). The 21,600 PE became ATM to slightly ITM (22,500 Nifty vs 21,600 strike -- 900 points ITM). 21,600 PE value on June 4 close: approximately Rs 920 (Rs 900 intrinsic + Rs 20 time value). Strangle value if held: Rs 0 (CE) + Rs 920 (PE) = Rs 920. Entry cost Rs 167. Gain: Rs 753 per unit. Rs 753 x 75 = Rs 56,475 per lot -- a 351 percent gain. But this required holding through the terrifying exit-poll high of June 3 where the strangle appeared to have 'failed' (the market moved in the opposite direction of the exit-poll projection).
Key Lessons From Both Election Strangles
Lesson 1 from 2019: the exit poll stage created the maximum realised gain from the strangle. Holding through official results day -- even when the directional thesis was confirmed (BJP won the majority) -- produced IV crush that overwhelmed the directional gain. The exit poll exit rule (exit at 50 percent gain at exit polls) would have produced Rs 90 per unit profit rather than the Rs 67 per unit loss from holding to post-results. The 2019 trade demonstrates why the exit poll exit rule is non-optional.
Lesson 2 from 2024: the exit poll exit (at Rs 165 per unit gain, 98.8 percent return) was the correct disciplined action. Holding through results produced dramatically more return (351 percent) but required enduring the uncertainty of the results-day shock and managing the completely unexpected reversal of the exit poll direction. The 2024 outcome (BJP dramatically underperforming exit polls) was not predictable from any pre-event analysis. The exit poll exit rule produced a solid 98.8 percent return while eliminating the risk of the results-day reversal. Both the exit (Rs 12,375 per lot) and the hold-to-results (Rs 56,475 per lot) were structurally valid -- but the exit was the pre-committed disciplined action, and the hold relied on surviving a potentially devastating adverse intermediate move.