Iron Condor | Options Strategy

A simple options strategy explained.

Hey there!

Bringing to you an options strategy that is ideal for trade in a sideways, low-volatility market - the Iron Condor.

➡️  An Iron Condor allows traders to profit in a sideways market that exhibits low volatility.

➡️ It is executed by shorting a call and a put closer to the money, and going long a call & a put that are further out of the money; all at 4 different strike prices, but with the same expiration date.

➡️ Profit is capped at the premium received while the potential loss is restricted to the difference between the bought and sold call strikes or the bought and sold put strikes, less the net premium received.

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Let’s understand this strategy with the help of an example:

➡️ The positions of an iron condor (for Nifty50 options of 28th Sept 2023 expiry as of 11th Sept 2023) may look like this:

  • Buying a 20,100 call option @109.55

  • Selling a 20,000 call option @157.00

  • Selling a 19,900 put option @136.10

  • Buying a 19,800 put option @102.50

Considering, a lot size of 50, the net premium of this position is earning Rs 81.05 per option (157.00 + 136.10 - 102.50 - 109.55). If the underlying price closes outside the range of 19,900-20,000, a maximum loss of Rs 947.50 would be incurred. But a price movement within the range would yield a maximum profit of Rs 4,052.50.

Let’s look at the payoff of such a position:

This position would yield a maximum profit of Rs 4052.50 while the loss would be restricted to Rs 947.50. Hence, the breakeven prices stand at 19,818.95 and 20,081.05.

None of the above stock ideas are intended as recommendations. Please consult a registered advisor before buying/selling.

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