F&O Radar | Deploy Short Iron Butterfly strategy on Nifty expiry to gain from theta decay
Nifty ended the day with a gain of 735.85 points or 3.36% at 22,620.35 level, led by strong buying activity across sectors but more prominent in banks and autos.
On Wednesday, the benchmark index Nifty marked a low of 21,792 and thereafter started marking the sequence of higher highs and lows on a lower time frame
The volatility index, India VIX, also witnessed a sharp decline in the last trading session tumbling over 29%.
“The IVs had gone up quite sharply on the election day and today there was a fall of almost 30% on India VIX. The market is sensing, a stable coalition government, however, until the new government is not formed the INDEX can trade within a tight range, hence a sideways/neutral strategy is recommended,” said Jay Thakkar, Vice President & Head of Derivatives and Quant Research at ICICI Securities
Highest outstanding OI
Weekly data
Call OI- 22,600 (1,27,417); 22,700 (1,12,174); 22,800 (1,48,277)
Put OI- 22,500 (1,36,456); 22,600 (88,724)
Monthly data
Call OI- 23,000 (1,56,117); 22,800 (Minor call writing of 50,424); 22,700 (Minor call writing of 44,949)
Put OI- 22,500 (1,29,643); 22,600 (Minor put writing of 39,093)
Given the weekly expiry amid such volatile sessions, Jay Thakkar suggests deploying a short iron butterfly strategy in nifty.
Short Iron Butterfly
A short iron butterfly spread is a four-legged strategy that consists of a bull put spread and a bear call spread in which the short put and short calls have the same strike price. All options will have the same expiration date, and
