Welcome, fellow Indian option traders, to another exciting exploration of options strategies. In this blog post, we will dive into the intricacies of the "Best Iron Butterfly Options Strategy" tailored specifically for the BHARTIARTL stock with the October 2023 expiry in mind.
Understanding the Iron Butterfly Strategy
The Iron Butterfly options strategy is a neutral strategy that can generate profits when the stock price remains within a certain range. It combines a bear call spread and a bull put spread, with the same strike price and expiration date.
To construct an Iron Butterfly, the trader sell one call option and one put option at the same strike price (K). The trader then Buy one OTM call options and one OTM put options at strikes that are slightly higher and lower than the strike price of the sold options, respectively.
The maximum profit of the Iron Butterfly strategy is achieved when the stock price remains at the strike price of the sold options on the expiry date. The maximum loss is limited to the premium paid for buying the options.
Advantages of the Iron Butterfly Options Strategy
- The Iron Butterfly strategy is a limited risk strategy. The maximum loss is limited to the premium paid for buying the options.
- The Iron Butterfly strategy can be used to generate profits when the stock price remains within a certain range. This is ideal for traders who believe that the stock price will not move significantly in the near future.
- The Iron Butterfly strategy is a relatively simple strategy to understand and implement.
Disadvantages of the Iron Butterfly Options Strategy
- The Iron Butterfly strategy is a directionally neutral strategy. This means that the trader profits only when the stock price remains within a certain range. If the stock price moves outside the range, the trader loses money.
- The Iron Butterfly strategy requires the trader to invest a significant amount of money in buying options.
I hope now you have understood what Iron Butterfly Options Strategy is. Lets us move to our Iron Butterfly Options Strategy in BHARTIARTL for October Strategy.
Iron Butterfly Options Strategy in Bharti Airtel for October Expiry
Before we move to our strategy, let us look at the chart of BHARTIARTL to find its trend and levels.
Now if you look at the chart, you will find that Bhartiartl is trying to give a breakout from its important resistance level i.e. 950.
Overall trend looks positive and a sustainable breakout will give some more upside levels till 1000 in the coming sessions.
Now let's look at the Open Interest chart of BHARTIARTL to check the possible range range of BHARTIARTL:
Important levels of BHARTIARTL
Now based on the OI data, 960 is acting as an immediate resistance level and the next resistance level is 1000 based on PCR rules to find support and resistance.
Now, after looking at the chart and OI data, can we say that if BAHARTIARTL manages to give a sustainable breakout from 960, we may see 1000 in the coming sessions?
We can use above analysis to initiate our Iron Butterfly Options Strategy in BHARTIARTL.
Iron Butterfly Options Strategy in BHARTIARTL
Here is the Iron Butterfly Options Strategy in BHARTIARTL for October expiry:
Now, I have done some optimisation in this strategy.
Although the Iron Butterfly Options Strategy is a neutral strategy, and we initiate it at or near ATM. But I have initiated it at OTM.
Do you have any idea?
Let me tell you. As you know based on the chart and OI data analysis the overall trend is UP and BHARTIARTL is trying to give a breakout from an important resistance level.
So I have created this strategy while keeping bullish movement in mind. If this breakout fails and BHARTIARTL start falling, we can make some adjustments because risk is very low.
I teach these strategies and adjustments in my Mentorship Program. You can follow the below button to join the Mentorship program.
Important things to kept in mind for Iron Butterfly Strategy
Strike Prices Selection
Choosing the right strike prices is crucial. The sweet spot is where the call and put options meet to create the butterfly's wings. Striking this balance is key to maximizing your profits.
Every trade involves risk, and the Iron Butterfly is no exception. Learn how to manage risk effectively. Diversify your portfolio, set stop-loss orders, and be prepared for adjustments.
Let's illustrate the profit potential with a real-life example. Suppose BHARTIARTL is currently trading at Rs. 750, and you establish an Iron Butterfly by selling a call at Rs. 750 and a put at Rs. 750. If the stock price stays close to Rs. 750 at expiry, you can pocket the premiums from both the call and put options.
So make sure you sell at that point where you are expecting the script to expire.
Always remember: In trading, not every move results in profits. Share insights from a trade that didn't go as planned, emphasizing the importance of disciplined risk management.
In conclusion, the Iron Butterfly options strategy presents an exciting opportunity for Indian option traders, particularly when dealing with a stock like BHARTIARTL in the October 2023 Expiry. This strategy's versatility, coupled with a thorough understanding of the stock's dynamics, can help you navigate the world of options trading effectively.
If you're eager to learn more and dive deeper into options trading, consider joining our "Options Strategies: A Mentorship Program" on TradePik. We offer comprehensive guidance to novice and experienced traders alike. Feel free to explore more resources on our platform and reach out if you have any questions.