Short iron fly strategy

The short iron fly strategy is an advanced option trading strategy that combines option buying and option selling. This strategy needs to be used in an underlying that is low-volatility and be in a specific range within the expiry contract.

This strategy comes with limited profits and losses.
let’s understand How the short iron fly strategy works:

1. In order to apply this strategy, you need to identify an asset that will be low volatile for a small period of time. You can select any index or stock that has option trading available

2. Selection of strike price is based on your range expectation of market, let me assume market Nifty CMP 18250 your expectation of market will be in a range of 300 point which is 18100 – 18400 then you will be selling an option 18100 PE and 18400 CE both are 3^th OTM strike price and then you will be buying further far OTM strike price which might by 5^th OTM or 7^th OTM. Expiration date of the contract need to be same.

3. The execution of this strategy needs to is first you need to buy CE & PE option then Sell CE & PE option.

4. Managing risk and protentional profit: The maximum profit is the net selling amount from the option, which is limited profit, and the maximum loss is the width between the strike price of the long and short positions minus the credit received. Any trader can choose to exit as per the target or exit the trade if it is not going as expected.
The short-fly condor strategy aims to generate profit through the premium collected from selling the options. However, it's important to note that this strategy has limited profit potential and carries potential risks if the underlying asset moves significantly beyond the range of the short options.

Rule-Based Trading: In short, with the iron condor strategy, you can apply a rules-based trading system that will have a fixed entry time, exit time, and stop loss. The rule is pretty simple.

• Entry time: 9:20
• Exit time: 3:15
• Stop Loss: 50% on premium only on option selling
• Strike price: 1^st ITM in selling CE and PE and 5^th OTM in buying CE and PE.
• No stop loss for option buying, but exit option buying only by 3:15.

If you follow this rule consistently for 3 months, you will be able to see the result.

How this strategy will give you profit and loss:

• The market is in a range.
• If the market moves significantly on one side, you can be in profit.
• If the market reverses after your stop loss hit, then you will be in loss.
• The market hits both sides. Stop losing; you will be losing.