Skip to content

Iron Condors-Neutral Strategy

Options-Trading-Beginners

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.

    Open FREE Acccount with us

     

    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.

    No comment yet, add your voice below!


    Add a Comment

    Your email address will not be published. Required fields are marked *

    F & O

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Open FREE Demat Account in less than 10 minutes (Commodity & Currency)

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Open FREE Demat Account in less than 10 minutes

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Related Posts

      Bullish Trend Reversal Candlestick Patterns
      Earning a profit in the bullish market is easier, as you can buy any stock...
      Identify Trend in Stock Market
      Derivatives or Future & Options (F&O) segment accounts major volume of trades in the stock...
      Options-Trading-Beginners
      Explanation Reverse iron condors are market neutral strategy with no directional bias. For this strategy...