If you’re new to options trading and looking for a low-risk, high-reward strategy, the Iron Butterfly Option might be the solution. This approach requires limited capital, making it ideal for beginners. For example, with Rs. 60,000, you can trade within a predetermined price range and generate steady income.
Let’s consider an example to better understand the strategy. It involves trading two Call and two Put options across three different strike prices. Suppose you buy an OTM call and put option for a stock valued at Rs. 500, along with an ATM CE and ATM PE with the same strikes. The objective is to profit from stable markets without hedging against volatility.
Assuming the stock is trading at 500 and expected to fluctuate within 25 points in either direction (475 to 525), you can buy Call and Put options with strikes at 525 and 475 respectively, while selling ATM options at 500 strikes. If the price remains within the upper and lower bands, you can profit from the position due to the significant premium decay of ATM strikes compared to OTM strikes. The premium received from selling ATM strikes should exceed the premium paid on OTM strikes.
The Iron Butterfly Option strategy provides a clear risk-reward ratio, enabling informed trading decisions. The maximum possible loss is limited to the total premium amount, mitigating risk.
To try this approach, you can explore the robot-based butterfly strategy on AlgoBulls. However, it’s important to remember that trading always carries some level of risk, so understanding the risks involved is crucial before investing your money.
In conclusion, the Iron Butterfly Option strategy is an excellent opportunity for novice traders to generate profits in the options market. With a clear risk-reward ratio and limited loss, it’s a low-risk, high-reward strategy that maximizes your capital efficiently