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Budget Day – Derivatives strategy industry quote
By Share.Market (PhonePe Wealth) Research
“Union Budget announcement days have been very volatile historically. Nifty50 movement has ranged between 2-3% on intraday basis, in 10 out of the last 12 instances (2014-2023 including interim budget announcement days).
On such days, how can traders make profits with a simple plain vanilla strategy?
While taking short positions on other days when Nifty50 shows such high movement will result in massive drawdowns, the Budget day is different. In the past, India VIX index has mostly risen in markets leading up to the budget day and subsequently crashed during the budget speech. Hence, rather than playing on delta (taking directional strategy), strategies on vega (volatility) crush seem to be more profitable.
To test the above hypothesis, we tried various strategies such as shorting Straddle, Strangle, Iron Fly, Iron Condor, Ratio Spreads, Ratio Back Spreads, Butterflies, Batman, Jade Lizard, etc. The strategy is entered at 9:30 am and exited at 3:25 pm with no adjustments in between. The strike selection for all the legs is dynamically selected based on the combined premium on the short and the long legs, i.e. side with a higher premium has lower exposure and with a lower premium has higher exposure, having risk management implicitly built in the process.
The result showed both Short Iron Fly and Short Iron Condor proved profitable maximum times, 11 out of 12 instances. The maximum profit per lot earned in Short Iron Fly was in 2018 (₹1,700 per lot) and in Short Iron Condor was in 2022 (₹650 per lot). 2021 was an outlier event when Nifty50 moved 4.74%. However, even in such massive movement, the maximum loss was limited to ₹5,300 per lot in Short Iron Fly and ₹3,050 per lot in Short Iron Condor strategies, due to strategic hedge placed on Out of Money (OTM) wings, as long positions.
Overall we feel that Short Iron Condor/Short Iron Fly is a good way of playing vega exposure on Budget day.”
“Investment in securities market are subject to market risks. Read all the related documents carefully before investing.”
All investors are advised to conduct their own independent research into investment strategies before making an investment decision.
Disclaimer: PhonePeWealth Broking Private Limited is a member of NSE & BSE with SEBI Regn. No.: INZ000302639, Registered Office Address: Office – 2, Floor 3, Wing A, Block A, Salarpuria Softzone, Bellandur Village, Varthur Hobli, Outer Ring Road, Bangalore South, Bangalore , Karnataka – 560103, Depository Participant of CDSL Depository with SEBI Regn. No.: IN-DP-696-2022, Research Analyst– INH000013387 and ARN- 187821. Member id : BSE – 6756 NSE 90226. CIN U65990KA2021PTC146954 “Registration granted by SEBI, and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.”