Modified Butterfly

A modified butterfly is a sophisticated four-leg strategy that uses unequal ratios between long and short options to enhance income generation while exploiting volatility skew patterns in the options market. This advanced strategy involves buying one lower strike call, selling three at-the-money calls, and buying two higher strike calls, creating an asymmetric payoff profile that maximizes premium collection while maintaining limited risk characteristics. The strategy is particularly effective when volatility skew favors out-of-the-money options over at-the-money options, allowing professional traders to capture enhanced income from the three short calls while maintaining protective long positions. The unequal ratio structure provides superior risk-adjusted returns compared to traditional butterflies and allows for more flexible position management. This strategy requires deep understanding of volatility dynamics and careful risk management due to its complex payoff structure

If NIFTY is at ₹25,800, set up: Buy ₹25,600 Call for ₹95, Sell three ₹25,800 Calls for ₹120 each, Buy two ₹26,000 Calls for ₹80 each, creating ₹105 net credit with maximum profit of ₹305 if NIFTY closes at ₹25,800.