Iron Condor Option trading strategy is used when the market is stable, neither a boom nor a recession is seen. This option trading strategy is the combination of short Straddle and long Strangle strategy, which is a very safe option trading strategy. The profit made in this is high, while the loss incurred is very low.
Iron Condor Option trading strategy has the same expiry, the same underlying value of two call options, and two put options are used. first, a bought put out-of-the-money and a sold put closer to at the money, and second, a bought call out-of-the-money and a sold call closer to at the money, position is created. in which out-the-money call and put options are bought, so that if there is any kind of boom or recession, there will be a small loss, and the call and put options are sold, it has been done so that the margin is kept to a minimum.
Some important things to remember before trading: -
1. Those who are going to use this strategy in the index or are going to use the strategy in any stock, there should not be much bullishness or recession in it.
2. All four options should have the same expiry.
3. All four options quantity should be equal in all, no one should have more or no one should have less, only then this strategy will work equally.
4. for position create: - first, a bought put out-of-the-money and a sold put closer to at the money, and second, a bought call out-of-the-money and a sold call closer to at the money.
5. for position square off: - first, square off at the money call & put option, then square off out-of-the-money call & put Option.
As mentioned above, as shown in the screenshot, the Bank Nifty 47800 call option and 41700 put option are both at the money. We have to sell and there is a call option of Rs 48200 and a put option of Rs 47300 which is out of the money, which we have to buy. By doing this the total margin seems to be under ₹50000.
CALCULATION
(PAID PREMIUM) BUY POSITION = PREMIUM PRICE OF 48200 CALL @32.70
(PAID PREMIUM) BUY POSITION = PREMIUM PRICE OF 47300 PUT @31.30
(RECEIVED PREMIUM) SELL POSITION = PREMIUM PRICE OF 47800 CALL @139.10
(RECEIVED PREMIUM) SELL POSITION = PREMIUM PRICE OF 41700 PUT @134.80
TOTAL (RECEIVED PREMIUM) SELL POSITION= 139.10+134.80= 273.90
TOTAL (PAID PREMIUM) BUY POSITION= 32.70+31.30=64
If the market is neither bullish nor bearish, the total sold position will result in a profit of 273.90 points. But in the case in which a buying position has been made, there will be a loss of 64 points and the total profit will be around 273.90-64 = 209.90 points. But it rarely happens in the market that the market closes near "At the money", in such a situation we can assume that profit can be around 150 to 200 points. But if there is a boom or recession in the market, we will not see this profit but will suffer a loss and the loss will also be very less. Because we have "out the money" call and put options buying position Already done.
How much capital will be required to build it?
As shown in the screenshot above, this entire short straddle and long Strangle, it is made by combining. In which at least ₹35000 will be required in Bank Nifty Option and at least ₹40000 in Nifty Option.
