Skip Strike Butterfly
Butterfly skipping ATM strike
Positions in Chart: Buy 1 lot of 25600 CE + Sell 2 lots of 26000 CE + Buy 1 lot of 26400 CE. Spot price: 25800
Setup
Buy lower strike OTM Call + Sell 2 higher strike OTM Calls + Buy far OTM Call (skip ATM)
When to Use
- Enhanced sideways premium
Market Outlook
Risk & Reward
Strategy Details
Description
A skip strike butterfly is an innovative variation of the traditional butterfly spread that deliberately skips the at-the-money strike to collect enhanced premium while maintaining limited risk characteristics. This strategy involves creating unequal wing spreads by positioning the short strikes away from the current market price, allowing traders to collect more premium than a standard butterfly while still benefiting from time decay and volatility compression. The skip strike approach is particularly effective when the at-the-money options are overpriced relative to out-of-the-money options, creating opportunities for enhanced income generation. Professional traders use this strategy when they expect the underlying to remain range-bound but want to optimize premium collection through strategic strike selection. The asymmetric structure provides better risk-adjusted returns compared to traditional butterflies
Example
If NIFTY is at ₹25,800, set up: Buy ₹25,600 Call for ₹95, Sell two ₹26,000 Calls for ₹80 each, Buy ₹26,400 Call for ₹35, creating ₹40 net credit with maximum profit of ₹240 if NIFTY closes at ₹26,000.
This information is for educational purposes only and should not be considered as financial advice. Always consult with a qualified financial advisor before making investment decisions. Data is constructed and is not actual. Calculations may have errors.
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