Query: How Can We Protect the Zen Credit Spread Overnight Strategy From Major Overnight Gap Risk?

Stratzy Algos
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Hi,

I have been observing the Zen Credit Spread Overnight strategy, and overall it seems to work well under normal market conditions. However, my concern is about sudden major events such as wars, geopolitical tensions, unexpected policy announcements, or other breaking news that can cause NIFTY to open with a 2% or larger gap-up/gap-down.

For example, during a major overnight event like the sharp market movement seen around 13 April 2026, an overnight credit spread could potentially suffer a significant loss before the market even opens.

I have a few questions regarding risk management:

  1. How can an investor protect an existing overnight position when major news is expected after market hours?

  2. If I activate the Kill Switch after market close, for example around 3:45 PM, what exactly happens?

    • Will it cancel/prevent an overnight trade that has already been generated?

    • Or does the Kill Switch only stop future trades?

  3. If the algo has already entered an overnight position before the Kill Switch is activated, will that position remain open until the next trading session?

  4. At what point does the strategy normally place its overnight trade? Is there any time window during which I can disable the algo before the position is entered?

  5. If I am monitoring the market/news and believe a large adverse gap may occur the next day, can I manually close the algo position before the market closes?

  6. If I manually close an existing position, will the algo try to re-enter the same trade, or will it remain closed?

  7. Is there any feature that allows us to skip only the next overnight trade without completely stopping the strategy?

  8. Does the Kill Switch affect only new orders, or can it also exit an already-open algo position?

My main concern is protecting capital during rare but high-impact overnight events, when a normal stop-loss may not be sufficient because the market can open directly with a large gap.

It would be helpful if you could explain the exact behaviour of the Kill Switch, manual exit, and overnight order placement for this strategy.

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Hi @smnthlhr

Thank you for sharing your detailed observation and for highlighting an important aspect of overnight algos. Please find the clarifications to your questions below:

  1. We would like to clarify that Zen Credit Spread Overnight is a hedged strategy, where the positions are structured with defined hedge legs as part of the strategy design. This hedge structure is intended to provide protection against adverse market movements, including significant overnight moves.

    However, the extent of protection and the actual Profit and Loss during an exceptional gap can vary depending on the magnitude and speed of the market movement, execution prices, and prevailing market conditions. Hence, the hedge provides a risk-management layer, but the outcome can vary during rare, high-impact/black swan events.

  2. The Kill All Trading Algos feature is available only during market hours. Therefore, it cannot be activated after market close, such as around 3:45 PM. During market hours, it exits open Algo positions and pauses new trades for the day.

  3. If the Algo has already entered an overnight position, the position will remain open as per the Algo’s predefined overnight strategy and will be closed when the predefined exit conditions are satisfied.

  4. All algos generate and execute trades when their predefined conditions are satisfied. The exact entry is signal-driven rather than based on a fixed daily trade time.

  5. This has already been addressed in one of our earlier posts. You can refer to it below: Exit all button - #6 by jay.gori

  6. This has already been addressed in one of our earlier posts. You can refer to it below: Once an algo is deployed and a trade is running, how can I manually close the trade? - #5 by harishkarthik7777

  7. There is currently no separate feature to skip only the next overnight trade while keeping the Algo active for subsequent signals. You can use the available trading controls to pause Algo trading when required. You can also turn off an algo’s automation from the application by going to the PnL section and, after clicking the algo, turning off the green toggle in the top-right.

  8. Kill All Trading Algos exits all open Algo positions and pauses new trades for the day. Therefore, it can affect both existing Algo positions and future Algo orders for the day.

The Algo’s predefined risk-management framework remains applicable, while manual controls such as manual exit and Kill All Trading Algos provide additional ways to manage active Algo positions.

I hope this provides some clarity.

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