Week ended 15th September: Iron Fly to benefit from high volatility

[Michael Gonsalves]

On Friday, 2nd September, the ViX was quite high at 19.55 in view of the Jobs report which was due to be presented that night in the USA.

So, I deployed an Iron Fly in the Bank Nifty. I chose the 15th September expiry so that I would have enough room to maneuver if things go haywire.

The spot is at 39400. The Break Evens are quite wide at 38950 (-2.1%) and 40400 (+2.5%).

Hopefully, if the ViX cools down and there is no aggressive movement on either side, I can take home a packet.

[Michael Gonsalves]

The Iron Fly was in good profit of about Rs 60000 till yesterday. However, today's 750 point surge in the Bank Nifty spoilt the show and led to a MTM loss of about Rs 27000. The spot is at 40200 while the Breakeven is at 40400. The best option is to square off the Fly and open a new one at the spot.

 

[Michael Gonsalves]

The Bank Nifty opened gap-up at 40500, putting my Iron Fly into a deep loss of Rs 1 Lakh. I added a straddle at 40500 which extends my BEP on the upside to 40873. If there is some retracement, the Iron Fly will be back in the green.

[Michael Gonsalves]

There is a relentless surge in the Indices. The Bank Nifty crossed 40600. So, I squared off 39500PE and shifted to 40600PE. This extends the BEP to 41000.

[Michael Gonsalves]

The Bank Nifty is very bullish and has crossed 40800. My position is at a no-profit no-loss stage. My options are:

(i) Stay with the position until 41000 is reached.

(ii) Book profits in the 40500 straddle and the 40600 short call. Open a new straddle at 40800 or 40900.

(iii) Square off all positions and open a new Iron Fly at the spot.

[Michael Gonsalves]

The Bank Nifty came close to touching the 41000 mark. So, I squared off the puts at 40500 and 40600 and shifted them to 41000PE. This has extended the BEP on the upside to 41300.

[Michael Gonsalves]

The Bank Nifty opened gap down about 600 points but fortuitously almost immediately recovered. This saved me because my 41000 Puts were bleeding. I also had some naked positions. Anyway, I decided to square off and take new positions.

[Michael Gonsalves]

The IV is high. Tomorrow is the expiry. So, I set up a new Iron Fly with 40800 as the straddle.

[Michael Gonsalves]

The Iron Fly got into trouble from the very start because the Bank Nifty surged to 41600. To salvage the situation, I added a straddle at 41300 and also moved the 40800PE to 41300. When even this BEP was at risk, I added a Call Calendar of 41400CE Sept and 41800CE of 15th Sept.

[Michael Gonsalves]

After breaching the ATH of 41800, the Bank Nifty took a breather and plunged to 41100. At the present level, my Iron Fly is in a profit. It is best to sqaure off because there are too many positions and it is not manageable if there is a sudden move either way.