Explanation:
Iron Condors are essentially just a hedged short strangle which profits from low movement and low volatility. It is market neutral and has no directional bias. Since we indirectly talking of strangle, the trader need to sell strikes at any distance from the underlying current price and the spread between the short and long options should be same. The strategy is made for net credit and the strikes will have direct impact on how much premium an operator will receive while implementing strategy.
For implementing a iron condor, a trader need to but 1 deep OTM call, sell1 OTM call option, sell 1 OTM put option and finally buy 1 deep OTM put.
Risk:
Max loss is the difference between the long call and short call strikes.
Reward:
Maximum reward is equal to the net premium received
Construction
Buy 1 Deep OTM Call
Sell 1O TM Call Option
Sell 1OTM Put Option
Buy 1 Deep OTM Put
| Option Type | Expiry Date | Strike Price | LTP | Action | No. Of Lots |
| PUT | 25-05-2023 | 18150 | 103.3 | Sell | 1 |
| CALL | 25-05-2023 | 18250 | 85.25 | Sell | 1 |
| PUT | 25-05-2023 | 18100 | 84.65 | Buy | 1 |
| CALL | 25-05-2023 | 18300 | 65.3 | Buy | 1 |
| Market Expiry | Payoff 1 | Payoff 2 | Payoff 3 | Payoff 4 | Net Premium | Option PayOff At Expiry |
| 17800.0 | -350.0 | 0.0 | 300.0 | 0.0 | 39.05 | -10.95 |
| 17850.0 | -300.0 | 0.0 | 250.0 | 0.0 | 39.05 | -10.95 |
| 17900.0 | -250.0 | 0.0 | 200.0 | 0.0 | 39.05 | -10.95 |
| 17950.0 | -200.0 | 0.0 | 150.0 | 0.0 | 39.05 | -10.95 |
| 18000.0 | -150.0 | 0.0 | 100.0 | 0.0 | 39.05 | -10.95 |
| 18050.0 | -100.0 | 0.0 | 50.0 | 0.0 | 39.05 | -10.95 |
| 18100.0 | -50.0 | 0.0 | 0.0 | 0.0 | 39.05 | -10.95 |
| 18150.0 | 0.0 | 0.0 | 0.0 | 0.0 | 39.05 | 39.05 |
| 18200.0 | 0.0 | 0.0 | 0.0 | 0.0 | 39.05 | 39.05 |
| 18250.0 | 0.0 | 0.0 | 0.0 | 0.0 | 39.05 | 39.05 |
| 18300.0 | 0.0 | -50.0 | 0.0 | 0.0 | 39.05 | -10.95 |
| 18350.0 | 0.0 | -100.0 | 0.0 | 50.0 | 39.05 | -10.95 |
| 18400.0 | 0.0 | -150.0 | 0.0 | 100.0 | 39.05 | -10.95 |
| 18450.0 | 0.0 | -200.0 | 0.0 | 150.0 | 39.05 | -10.95 |
| 18500.0 | 0.0 | -250.0 | 0.0 | 200.0 | 39.05 | -10.95 |
| 18550.0 | 0.0 | -300.0 | 0.0 | 250.0 | 39.05 | -10.95 |
| 18600.0 | 0.0 | -350.0 | 0.0 | 300.0 | 39.05 | -10.95 |
Option Payoff Chart
Example
Nifty is trading at 18100 levels and the trader is bearish on market and neutral on market. he implemented iron condor strategy where he bought and short call and puts. The strategy involves buying 18100 put at a premium of 85, selling 18150 put at premium of 103, selling 18250 calls at premium of 85 and buying 18300 calls at 18300.total funds inflow at beginning amount to Rs. 2000 (103+85-65-84) * 50.
Scenario 1:
If the price of the underlying closes on extreme level of either side i.e., 17800 or 18400, the resulting trade will end up making loss to trader as shown in table above
Scenario 2:
The trader will make profit if the price of the underlying closed in between the short call and pt option. Under such scenario, both short options will expire worthless and the trader will be able to keep the premium received.
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