Trading Strategy for Budget 2024:
Finance Minister Nirmala Sitharaman to Present FY25 Budget on February 1.
With the impending general elections, the government is expected to refrain from announcing significant policy changes in this interim budget.”
“Analysts on Dalal Street foresee minimal effects of the interim budget on stock markets. Anticipate ongoing activity, providing trading prospects for both traders and investors. Historically, the Indian stock market has exhibited volatility on Union Budget announcement days, with Nifty 50 movements fluctuating between 2-3% intraday in 10 of the last 12 instances.”
“Sujit Modi, Chief Investment Officer at Share.Market Research (PhonePe Wealth Broking), offers insights into how traders can capitalize on the budget day using a straightforward strategy.
Historically, the India VIX index has typically surged leading up to the budget day and then plummeted during the budget speech. Consequently, he suggests that instead of employing directional strategies based on delta.
Focusing on strategies centered around vega (volatility) crush may yield higher profitability.
Experimental Strategies: Testing the Hypothesis:
Modi mentioned that to validate the aforementioned hypothesis, they experimented with several strategies.
It includes shorting Straddle, Strangle, Iron Fly, Iron Condor, Ratio Spreads, Ratio Back Spreads, Butterflies, Batman, Jade Lizard, and others.
The strategy is initiated at 9:30 am and concluded at 3:25 pm without any alterations in between.
Moreover, selection of strike prices for all positions is dynamically determined based on the combined premium of the short and long legs.
In this approach, the side with a higher premium entails lower exposure, while the side with a lower premium entails higher exposure, inherently integrating risk management into the process,” explained Modi.
The findings revealed that both Short Iron Fly and Short Iron Condor strategies were profitable in the majority of instances, succeeding in 11 out of 12 cases.
The highest profit per lot attained in Short Iron Fly occurred in 2018:
(₹1,700 per lot), while for Short Iron Condor, it was in 2022 (₹650 per lot).
2021 represented an exceptional event, with Nifty 50 experiencing a movement of 4.74%.”
Even amid such significant fluctuations, we managed to contain the maximum loss at a manageable level.
₹5,300 per lot in the Short Iron Fly strategy and ₹3,050 per lot in Short Iron Condor strategies.
Owing to strategic hedging positioned on Out of Money (OTM) wings through long positions,” he elaborated.
In summary, the analyst believes that utilizing Short Iron Condor or Short Iron Fly represents a favorable approach for managing vega exposure on the Budget day.
