Stock market strategy on Budget 2025 date: Sujit Modi of Share.Market suggests Short Iron Fly & Short Iron Condor

As the Union Budget approaches, traders brace for heightened volatility in the Indian stock market. Historically, the Nifty 50 has exhibited intraday fluctuations within a 2-3% range on Budget Day, presenting both opportunities and risks for traders.

According to Sujit Modi, CIO of Share.Market, implied volatility (IV) surges in the days leading up to the Budget and drops sharply once the speech begins. This makes vega-based strategies, rather than traditional directional trading, more effective in capitalizing on the IV crush.

Backtesting Budget Trading Strategies

To validate this approach, multiple options strategies were tested, including Short Straddle, Short Strangle, Iron Fly, Iron Condor, Ratio Spreads, Butterflies, and more. The backtesting was conducted under the following conditions:

Entry Time: 9:30 AM

Exit Time: 3:25 PM

No intraday adjustments

Strike selection: Dynamic, based on the combined premium of short and long legs

Risk management: Strategic hedging incorporated to control losses

Key Findings

The results highlighted that the Short Iron Fly and Short Iron Condor strategies consistently delivered profitability, succeeding in 13 out of 14 instances over the past years.

Maximum Profit Per Lot (July 2024):

Short Iron Fly: ₹1,746

Short Iron Condor: ₹780

Exception – Budget 2021: In 2021, an outlier move of 4.74% in the Nifty 50 resulted in higher-than-usual losses. However, protective OTM hedges helped mitigate risk:

Short Iron Fly Max Loss: ₹5,300 per lot

Short Iron Condor Max Loss: ₹3,050 per lot

Why These Strategies Work on Budget Day

Given the historical trend of IV contraction post-Budget, traders can potentially benefit from selling high IV and covering positions before it collapses. The Short Iron Fly and Short Iron Condor effectively exploit this pattern by providing controlled risk exposure while profiting from the anticipated drop in volatility.

Conclusion

For traders navigating the volatility of Budget Day, adopting vega-based strategies such as Short Iron Fly and Short Iron Condor may prove more effective than traditional directional approaches. With proper risk management, these strategies offer a structured way to capitalize on market fluctuations while minimizing potential downside risks.

Read Budget 2025 Expectations Live Updates here

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