Strategy description

DecayEdge – Short Iron Butterfly Strategy (NIFTY Options)

Strategy Overview

1. Strategy Type: Short Iron Butterfly (Non-Directional, Theta-Decay Based)
2. Instrument: NIFTY Weekly Options
3. Objective: To capitalize on time decay (theta) in range-bound or low-volatility markets.

Description

The DecayEdge Short Iron Butterfly is a non-directional options strategy built to profit from premium decay and range-bound market movement. It involves selling ATM options and buying OTM protective legs to form a well-defined risk-reward structure.

Strategy Structure

1. Sell 1 ATM Call (CE) and 1 ATM Put (PE) to capture maximum premium decay near the current NIFTY spot.
2. Buy 2 OTM Calls (above) and 2 OTM Puts (below) as protection to cap losses from large directional moves.

Payoff Profile

Edge & Advantages

• Relies on time decay (theta) and premium erosion as expiry nears.
• Ideal for low-volatility, range-bound markets.
• Fully hedged — risk is predefined at entry.
• Safer than naked short straddles or strangles.

Risk Management

1. All positions are hedged with protective OTM options.
2. Maximum loss is predefined at entry.
3. Optional exit triggers can be added based on MTM, SL, or volatility spikes (VIX).
4. Fixed Loss Rule: If total session loss reaches ₹1,500, the strategy will exit all positions.

Loss Management Procedure

If any unexpected result is observed, pause the strategy immediately and manually close all open positions. Contact the support team before resuming. Unexpected results may stem from technical glitches or undefined market conditions.

Discipline Guidelines for Algo Trading

1. Paper Trading First: Run the strategy in paper mode for at least one week before going live.
2. Live Deployment: Go live only after consistent, positive performance in paper trading.
3. Drawdown Control: Stop trading if losses exceed 4%; never increase lot size to recover losses.
4. Scaling Rule: Increase multiplier only after one full month of profitable live trading.
5. General Discipline: Stay emotion-free; follow data-driven decisions and maintain performance logs.