What are broken wing strategies and how to trade them

gmt900

Well-Known Member
#1
Hi,
I have been looking for a stategy which will have limited profit potential and limited loss risk . With the introduction of 50 points strike price difference for nifty, there is a possibility of using different strategies with this objective.
One such strategy is Iron Condor. However, broken wing butterfly or condor strategy has a potential to give better profit. Especially if the risk is more on the upside or downside this strategy will score over Iron Condor. Please see;
http://www.optiontradingpedia.com/put_broken_wing_condor_spread.htm.

I am not an expert option trader but I believe the broken wing strategy will be simple to implement and will not have unlimited risk like short straddles or strangles. Having said that, I am sure there must be criteria like when to enter/ exit depending on expiry/volatility etc.

Another advantage I see for this strategy is one does not have to constantly monitor the trade.

I would welcome members like DanPickUp to enlighten me and if possible ,walk through the strategy for nifty.

Just like the difference between short strangle and short straddle, there is a difference between broken wing butterfly and condor. I would like to know the pros and cons of these strategies.

Thanks and regards,
gmt900
 

DanPickUp

Well-Known Member
#2
@Gmt900

Interesting topic your thread has. There are a lot of Nifty option traders here in this forum and I am sure that some of them are involved or have thought about those BWCondors or BWButterflies in your market.

As your link already includes a lot of information about the strategy, I think it would make much sense if the Nifty option traders post there pros and cons about it. Have subscribed to the thread just now.

Take care / DanPickUp
 

comm4300

Well-Known Member
#3
@gmt

thank you for opening this thread.


options strategies like BWB are nice to implement.

the only concern is that they way NSE charges margin.

Else, a good strategy to implement.


Personally, i like ratio spread than BWB (i do not buy tail); and i use it as a contrarian play.

hope to hear from experts.
 

DanPickUp

Well-Known Member
#5
@gmt

thank you for opening this thread.


options strategies like BWB are nice to implement.

the only concern is that they way NSE charges margin.

Else, a good strategy to implement.


Personally, i like ratio spread than BWB (i do not buy tail); and i use it as a contrarian play.

hope to hear from experts.
@Comm4300

As you more in Nifty option trading, some examples about the margins included with that strategy and probably which broker would give the best go for it in India?

An other point is the filled: If we implement that strategy at once with any broker in India, how good are the chances for you to be filled with the given prices you want to have for such a BWC?

Take care / DanPickUp
 

DanPickUp

Well-Known Member
#7
-On breaking the wing , butterfly turns into simple ratio spread which can have unlimited loss.
-Consider the case of Swift (not slow ) move in the direction of your spread & check P/L.
-Google for book 'one strategy for any market' , it deals with such spreads exclusively.
@Abcpankaj

That book was posted some time ago by Comm4300. But thanks to mention it again. Here the autor: J.L. Lord

As you now seem to have read that book and know the pros and cons, do you trade them now in your Indian market?

As you say: On breaking the wing , butterfly turns into simple ratio spread which can have unlimited loss. Any better idea from your side or how do you handle such events? Did you ever face live such an event and if so we would be pleased to see when it happend in the past?

Take care / DanPickUp
 

comm4300

Well-Known Member
#8
@Comm4300

As you more in Nifty option trading, some examples about the margins included with that strategy and probably which broker would give the best go for it in India?
Hi Dan,

Margin : depends on how closer strikes you choose...OTMs would have lesser margin. sorry, cannot come up with exact figure. SPAN margin file can help.

the broker i like in this regard is Zerodha....
other than that, i guess the margin is decided by NSE stock exchange itself. And iam not sure if they recognize these strategies. I know for sure that they recognize Calendar spread.

An other point is the filled: If we implement that strategy at once with any broker in India, how good are the chances for you to be filled with the given prices you want to have for such a BWC?

Take care / DanPickUp
If the strategy is tried out for Nifty, chances of being filled is pretty good as compared to other underlyings. Nifty is liquid enough at least 10 strikes above and below the current level.
 

DanPickUp

Well-Known Member
#9
@Gmt900

Did you make a check with your broker about the possible margins and about if he would be able to fill your orders (and in what way/ leg by leg or an order at once) for such an option strategy?

DanPickUp
 

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