Advanced Non-Directional Options Strategies Which Every Trader Should Know: Part-2

1. Long Iron Fly: Profiting from Stability

• What It Is: A limited-risk strategy aimed at capturing profits when the underlying asset’s price remains near a central strike.
• Execution:
  • Buy one ITM call.
  • Sell two ATM calls.
  • Buy one OTM call.
• Why Use It: Ideal for markets where the price is expected to stay stable within a narrow range.

• Risk: Limited to the net premium paid.
• Reward: Limited to the difference between the strikes, minus the premium.

• Buy a ₹95 call (₹3), sell two ₹100 calls (₹5 each), and buy a ₹105 call (₹2).
• Net premium paid: ₹3 (₹3 + ₹2 - ₹10). If XYZ remains close to ₹100, you profit from the premium difference as the sold calls decay faster than the bought options.

2. Short Iron Fly: Betting on High Volatility

• What It Is: The inverse of the Long Iron Fly, this strategy profits from significant price movement.
• Execution:
  • Sell one ITM call.
  • Buy two ATM calls.
  • Sell one OTM call.
• Why Use It: Best when you expect high volatility and large price swings.

• Risk: Limited to the difference between strikes minus the premium collected.
• Reward: Limited to the net premium collected.

• Sell a ₹95 call (₹8), buy two ₹100 calls (₹5 each), and sell a ₹105 call (₹3).
• Net premium collected: ₹1 (₹8 + ₹3 - ₹10). If XYZ moves significantly above ₹105 or below ₹95, the strategy can yield profits.

3. Long Iron Condor: A Strategy for Stability

• What It Is: A non-directional strategy that profits from minimal price movement within a wider range.
• Execution:
  • Buy one ITM call.
  • Sell a slightly ITM call.
  • Sell a slightly OTM put.
  • Buy one OTM put.
• Why Use It: Excellent for low-volatility markets with moderate price fluctuation expectations.

• Risk: Limited to the net premium paid.
• Reward: Limited to the difference between strikes.

• Buy a ₹90 put (₹2), sell a ₹95 put (₹4), sell a ₹105 call (₹4), and buy a ₹110 call (₹2).
• Net premium paid: ₹0 (₹4 + ₹4 - ₹2 - ₹2). If XYZ stays between ₹95 and ₹105, you profit as the sold options decay faster than the bought options.

4. Short Iron Condor: Capitalizing on Volatility

• What It Is: The opposite of a Long Iron Condor, this strategy profits from significant price movement outside a predefined range.
• Execution:
  • Sell one ITM call.
  • Buy a slightly ITM call.
  • Buy a slightly OTM put.
  • Sell one OTM put.
• Why Use It: Perfect for high-volatility scenarios or significant price shifts.

• Risk: Limited to the difference between strikes minus the premium collected.
• Reward: Limited to the net premium collected.

• Sell a ₹90 put (₹3), buy a ₹95 put (₹2), buy a ₹105 call (₹2), and sell a ₹110 call (₹3).
• Net premium collected: ₹2 (₹3 + ₹3 - ₹2 - ₹2). If XYZ moves outside the range of ₹95–₹105, the strategy profits.

5. Double Fly: Expanding the Profit Zone

• What It Is: Combines two Iron Flies to profit over a wider range of prices.
• Execution: Use two different sets of Iron Fly strikes.
• Why Use It: A versatile strategy for moderate volatility and range-bound markets.

• Risk: Limited to the premium paid.
• Reward: Limited to the difference between strikes within the profit zone.

• Strike Set 1: ₹90, ₹95, ₹100.
• Strike Set 2: ₹100, ₹105, ₹110. If XYZ stays between ₹90 and ₹110, you profit from time decay across both ranges.

When does traders Use These Strategies

• Iron Fly (Long/Short): Use when expecting minimal or significant price movement, respectively.
• Iron Condor (Long/Short): Excellent for structured trades in both low- and high-volatility markets.
• Double Fly: Perfect for capturing profits across a broader price range in moderately volatile markets.

To Conclude