Hello Friends. Welcome to this yet another blog post related to budget day option strategy in nifty and bank nifty.
It's almost 6 years but I still remember when I wrote my first article my first blog. That time it was "Replete Equities" now I have redesigned it as "TradePik".
Motivation came when few of my friends suggested I should start a channel or community where I can help other fellow traders. All these traders are part of a WhatsApp group that I have created just to exchange our thoughts and ideas.
That time we all were facing a common problem. This world is full of theoretical knowledge but practical knowledge is missing.
Then I got the idea to start a blog where I can share my knowledge and experience with our fellow traders.
My objective to start this blog was very clear. I will not share any theoretical knowledge I will share the learnings that I acquired through my own experience. That practical knowledge or the data points helped me to add real money to my account.
From day 1 till today, I only post those strategies that I implement in my account and find them worthy to follow continuously.
Today also I will share only those budget day option strategies that are simple, consistently profitable and a beginner's friendly.
So without wasting your much time, let's move to our badget day option strategy.
How to choose the budget day option Strategy?
When we talk about budget day option strategy, there are two types of strategies. One is before the budget day and another is after budget day.
Do you know why I'm considering before or after the timeframe?
The reason is implied volatility (IV). Because IV plays an important role in such events.
Before the event, IV goes UP and once event is over, IV drop sharply.
So it's important to consider IV while choosing your strategy for events like Budget Day.
If you want to create a strategy before the event then choose a strategy in which VEGA is positive. And for the after-event choose a strategy with negative VEGA. (Vega represents the volatility in option pricing.)
One more important thing you should consider while choosing a budget day option strategy is limited risk. Because we may see a wild swing in the price and the price may go any side. So it's important to choose a budget day option strategy that has limited risk on both sides.
Here are the two strategies that you can consider for the budget day options strategy:
- Before budget day consider the calendar spread, because it's a vega long strategy.
- After budget day consider Iron Butterfly, because it's a vega short strategy.
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In the next section, I will share an example of both strategies. So let's dive in.
Budget day option strategy with examples
When you want to create a budget day option strategy, few things you should keep in mind. One such thing is "MAX PAIN".
Max pain tells us which strike is having the maximum open interest for calls and puts. Take a look at the below open interest chart:
Based on the above OI chart, you can see 21700 having the maximum call and put open interest. So this strike is acting as the "Max Pain".
Now why I'm telling you about Max Pain?
Because we use this max pain strike to create our budget day option strategy. For example:
- For calendar spread, you can sell the strike which is having the maximum pain for the current expiry and buy the same strike for the next expiry. Like:
- Sell 21700 CE for February 01, 2024 expiry and Buy 21700 CE for February 29, 2024. Understood?
- For Iron Butterfly, you can sell a call and put for the strikes which is having the max pain. You need to buy 200 - 300 points OTM call and Put options to hedge this position. Like:
- Sell 21700 CE & PE and Buy 22000 CE & 21400 PE.(same expiry)
Here are the examples of the above mentioned strategies:
- Calendar Spread Option Strategy in Nifty:
- Iron Butterfly Option Strategy in Nifty:
I hope now you know what are the best budget day option strategies and how to choose and create them.
(Please note: The above-shared strategies are examples just to give you clarity. These are not any recommendations to deploy in a real account.)
I have shared one BankNifty strategy ahead of Budget Day on the blog, you can check that too.
- Here is the link: Bank Nifty Option Strategy for Budget Session in 2024
I hope you like the post. Please post your queries, related to the budget day option strategy in the comment box.
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DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders who are aware of the risk inherent in securities trading.