Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

Reverse Iron Butterfly Strategy for Nifty

1 min read

As there is a low volatility prevailing in the market and most of the bullish people are expecting a breakout either above 5300 levels. For those who people who are expecting a breakout above 5300 levels before expiry here is a safe strategy to practice. Its called Reverse Iron Butterfly Strategy. The reverse iron butterfly strategy is designed to take advantage of sharp swings in the underlying security


[wp_ad_camp_5]

 
A reverse iron butterfly reveals that the strategy is basically the combination of both a long call spread and a long put spread, with the purchased options overlapping on a center strike. In order to initiate a reverse iron butterfly, the trader sells an out-of-the-money put and an out-of-the-money call, while simultaneously buying an at-the-money put and an at-of-the-money call. All four options will have the same expiration date.

In this case i had sold the out of the money call  5300 and out of the money put 5100 and bought 5200 call and 5200 put.

Net Investment = [(Long 5200call + Long 5200 put)-(Short 5300 call + Short 5100 Put)]*50

Net Investment = [(54.55+45.8)-(16.9+18.5)]*50 = Rs 3247

Even if market reverses against your expectation and falls badly and expires below 5150 you are going to gain the same profit what you are going to gain on the upper side breakout. You will incur loss only if nifty expire range bound between the lower breakout point 5135 and the upper break even point 5264. Else you will be in safer hands of profit

Nifty CMP : 5198

TypeStrikeExpiryQuantiyPremium
Short Put5,100.0025-Mar-105018.5
Long Put5,200.0025-Mar-105045.8
Long Call5,200.0025-Mar-105054.55
Short Call5,300.0025-Mar-105016.9

Max Loss = Rs 3247 if nifty expires at 5200

Max Profit= Rs 1752  

Loss will incur if nifty expires between the breakout points

Look the strategy graph to get a clear idea

I would request my member to paper trade this strategy and to study the results of such a safer strategy

Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

Nifty and Bank Nifty Straddle Premium, Implied Volatility and…

Focusing on the straddle premiums is quite important as we are nearing the major economic event of Budget 2023. Ahead of a major economic...
Rajandran R
1 min read

Understanding Option Mispricing Trading Strategies

Options mispricing is a phenomenon that occurs when the market price of an option deviates from its theoretical or fair value as calculated using...
Rajandran R
2 min read

Difference Between India VIX and Implied Volatility

India VIX (India Volatility Index) is a measure of the market’s expectation of volatility in the Indian stock market over the next 30 calendar...
Rajandran R
2 min read

2 Replies to “Reverse Iron Butterfly Strategy for Nifty”

Leave a Reply

Get Notifications, Alerts on Market Updates, Trading Tools, Automation & More