Maximizing Earnings with Nifty Iron Fly: A Strategic Guide
Are you looking to earn a steady monthly income from options trading? The Iron Fly strategy based on Nifty 50 might just be your golden ticket. With a potential to achieve 4–5% monthly returns and an annual yield of 36%, this strategy is worth exploring. Let's delve into the details of what Iron Fly is, when it can be useful, and how to implement it effectively.
What is an Iron Fly?
The Iron Fly (Iron Butterfly) is a market-neutral options trading strategy designed to profit in low-volatility markets. It generates income by leveraging time decay and has defined risk and reward. It consists of four option contracts:
Sell a Synthetic Future at-the-money (ATM).
Buy a call option (out-of-the-money, higher strike).
Buy a put option (out-of-the-money, lower strike).
This setup creates a "wingspread," where the middle strikes form the body, and the out-of-the-money options are the wings, providing risk protection.
When is it Useful?
The Iron Fly strategy shines in low-volatility scenarios or when the Nifty 50 is range-bound. It's best suited for traders who:
Believe the index will not move significantly before expiry.
Want a steady income with controlled risk.
Prefer a hands-on strategy that involves adjustments to maximize returns.
How to Create an Iron Fly for Nifty 50
To implement this strategy on Nifty 50, follow these steps:
Timing the Trade:
Enter the Iron Fly one week before expiry.
Use a synthetic future ATM price for the next month’s expiry.
Setting Up the Trade:
Sell a Synthetic ATM Call and Put: These form the center of the Iron Fly.
Hedge with Out-of-the-Money Options: Sum the premiums of ATM options, and buy corresponding far-out options for risk protection.
Adjustments for Better Returns:
If Nifty crosses either break-even point, shift the touched hedge two strikes closer to the ATM.
Simultaneously, sell an extra 0.1 delta option on the opposite side to earn additional income.
Managing the Trade
For optimal profits and risk control, make these adjustments:
Monitor the price movement:
If Nifty crosses the mid-sell price (opposite side), exit the extra sold option.
If the extra sold option’s delta falls to 0.04 or below, book the profit, and reinvest it by:
Selling another 0.1 delta option.
Buying one strike above it, while exiting the same side hedged buy option.
Example: Nifty Iron Fly for August 2024 Expiry
To make it more practical, let’s see this strategy in action:
Trade Setup:
Indian markets open at 9:15 AM, so trades are typically placed by 10:15 AM after observing market movements.
For the August 2024 expiry, we begin on 19th July 2024 at 10:15 AM.
Nifty Spot Price: 24,682.7
Synthetic Future ATM Price: 24,800
Sell 24,800 Call: ₹450
Sell 24,800 Put: ₹434.80 (Total Premium Collected = ₹900)
To hedge:
Buy 25,700 Call: ₹122.5
Buy 23,900 Put: ₹157
Break-even Range: 24,195 to 25,405.
- Adjustments:
On 5th August 10:45 AM, Nifty drops below the lower break-even of 24,195.
Close 23,900 Put: ₹306
Buy 24,000 Put: ₹341.60
Sell Additional 25,400 Call: ₹44
At this stage, there’s still a profit of ₹1,000 on a margin of ₹3.5L.
On 14th August 10:16 AM, the 25,400 Call’s delta crosses 0.04, so:
Close 25,400 Call: Book the profit.
Sell 25,000 Call (0.1 delta): ₹28
Buy 25,050 Call: ₹23.9
Exit 25,700 Call: ₹6.2
Profit increases to ₹5,000 against ₹2.5L margin.
Profit Tracking:
16th August 10:15 AM: Profit reaches ₹10,000 (~4% ROI on invested margin).
19th August 10:15 AM: Profit increases to ₹18,000 (~6.5% ROI on invested margin).
Closing the Trade:
Close the position before 22nd August (a week before expiry) but we reach ~6% ROI on 19th August so we close this early.
Mostly if on Last week if we reach more then 3% profit then we exit the prosition.
Backtesting the Strategy
To build confidence in this strategy, use a simulator like stockMock Simulate the trades and adjustments over historical data to understand its profitability and risk management nuances.
Final Thoughts
The Nifty Iron Fly strategy is a promising approach for disciplined traders who are ready to monitor and adjust their trades actively. With consistent application and well-timed adjustments, you can potentially earn 4–5% per month, translating to a robust 36% annual return.
However, remember that investment in securities is subject to market risks. Always backtest your strategy on a simulator like and trade wisely.
By following this guide and example, you can start executing the Nifty Iron Fly strategy with confidence. Ready to test it out and watch your profits soar? Let me know if you'd like further assistance!