Adverse Scenario
1) Nifty reaches 7180 and we are on loss. Threatens to break 7300.
Solution:
a) We can use munde_77 technique which he explained in his threads http://www.traderji.com/options/91666-thoughts-trades-options.html. A variation of that
Buy back 7000 put at profit. Sell 7100 put.
=> If nifty comes back to 7100 from 7180 we gain in 7000 call. We loose in 7100 put. But delta is in our favour as ITM delta > otm delta. We close all positions in profit.
=> If nifty further moves away to 7210 we can again buy back 7100 put sell 7150 put. Tried to balance such that the gains if nifty reverses is always more than losses. Assuming no event days and nifty max moves around 70-80 points a day.
We go on doing that this till nifty reaches 7300 after which we close the position.
b) We can also do a small variation of technique a) by selling 7150 put and simultaneously buying 6850 call. So downside is protected. We can do this till nifty reaches 7300.
Any other adjustments you think for adverse scenarios in iron butterfly please explain.
1) Nifty reaches 7180 and we are on loss. Threatens to break 7300.
Solution:
a) We can use munde_77 technique which he explained in his threads http://www.traderji.com/options/91666-thoughts-trades-options.html. A variation of that
Buy back 7000 put at profit. Sell 7100 put.
=> If nifty comes back to 7100 from 7180 we gain in 7000 call. We loose in 7100 put. But delta is in our favour as ITM delta > otm delta. We close all positions in profit.
=> If nifty further moves away to 7210 we can again buy back 7100 put sell 7150 put. Tried to balance such that the gains if nifty reverses is always more than losses. Assuming no event days and nifty max moves around 70-80 points a day.
We go on doing that this till nifty reaches 7300 after which we close the position.
b) We can also do a small variation of technique a) by selling 7150 put and simultaneously buying 6850 call. So downside is protected. We can do this till nifty reaches 7300.
Any other adjustments you think for adverse scenarios in iron butterfly please explain.
Dear lemondew,
can I request you to produce the pay out diagram with your explanations?
So that we can mark the the areas of adjustments and other related studies.
Thanks