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Short Iron Butterfly
oscillateShort Iron Butterfly is a range bound strategy that offers decent reward/risk along with low cost
Example:
| Instrument | Qty | Price |
|---|---|---|
| BUY NIFTY 30-Jun-26 22600 PE | 65 | 1.85 |
| SELL NIFTY 30-Jun-26 24100 PE | 65 | 108.2 |
| SELL NIFTY 30-Jun-26 24100 CE | 65 | 101.25 |
| BUY NIFTY 30-Jun-26 25600 CE | 65 | 0.75 |
When To Execute?
Short Iron Butterfly is range bound Strategy. It is a combination of Bull Put spread and Bear Call Spread. With Short Iron butterflies, you are looking to execute a potentially high-yielding trade at very low cost, where your maximum profits occur if the stock is at the middle strike price at expiration.In scenario where strike difference is not equal it is known as Modified Short Iron Butterfly.
Trade
Buy 1 lot OTM Put, Sell 1 lot ATM Put, Sell 1 lot ATM Call and Buy 1 lot OTM Call
Advantages
_x001A_ It is executed when we expect least volatility in the stock 2.It helps to participate in high yielding trade with relatively low cost 2. Being completely hedge one can hold to the stock till expiry
Disadvantages
_x001A_Time decay is generally harmful when stock is near Long Put strike or Long Call strike and beneficial if stock price is near ATM short call & Put strike _x001A_Maximum loss is capped 3.Strike selection is a key to garner maximum benefit
Maximum Profit
Maximum reward is the difference between adjacent strike prices less the net debit. (Strikes are equip-distance from each other).
Maximum Loss
It is Net debit Strategy. However net cost to establish is very low 2. Maximum risk is the net debit of the bought and sold options.