Iron Butterfly

Options Spreads Intermediate NIFTY BANKNIFTY FINNIFTY Stock Options

Pinning at exact strike price expected

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Quick Reference

Strategy Type	Defined Risk - Neutral Premium Selling (Peaked)
Market Outlook	Pinning at exact strike price expected
Risk Profile	Limited to Width minus Net Credit on either side
Reward Profile	Maximum at exact body strike only, declines rapidly
Time Horizon	Expiry day primary, 1-3 days maximum
Capital Requirement	SPAN margin Rs.40,000-50,000 per lot, Max loss Rs.500-1,500
Best Used When	Expiry day at max OI strike with elevated IV, expecting pinning behavior, high conviction on exact price level

When to Use This Strategy

Expiry day at max OI strike with elevated IV, expecting pinning behavior, high conviction on exact price level

Payoff Diagram

Profit ▲ │ /\ Max │ / \ Profit│ / \ │ / \ │ / \ 0 ──┼──────/──────────\──────── Price │ / \ Max │____/ \____ Loss │ A B C ▼ (Long (ATM (Long Put) Strike) Call) A = Long Put (OTM - Wing/Protection) B = Short Put AND Short Call (BOTH AT SAME ATM STRIKE) C = Long Call (OTM - Wing/Protection)

India-Specific Notes

Trading Hours

Best Entry	When price is at key support/resistance expected to hold, after event IV spike
Avoid Entry	Before major events, when price is trending
Optimal Monitoring	Daily check - position is sensitive to price movement from ATM

Expiry Behavior

Weekly Expiry	Thursday (NIFTY, BANKNIFTY, FINNIFTY)
Monthly Expiry	Last Thursday of month
Expiry Day Tips	Iron Butterfly achieves max profit ONLY if price expires exactly at ATM strike • Gamma risk is highest near expiry when price is at ATM strike • Consider exiting by Wednesday if price is within profit zone • Pin risk: Price may oscillate around ATM strike on expiry day

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