Hello Guys, I hope you all are doing good. Today I’m sharing the Iron condor option strategy in SBIN.
Iron Condor option strategy is a neutral strategy. You can deploy this strategy when you are expecting a range-bound activity in any particular script. It’s a limited risk strategy and good for beginners.
As you know in my every post, I’m talking about risk management. With this strategy, you can manage your risk well. In this post, We will talk about why I’m deploying this strategy in SBIN and how can we do the adjustments if the script starts moving beyond our breakevens.
What is the Iron Condor Option Strategy?
It’s a four-leg strategy. Most traders are making it as a credit spread to get benefits of theta decay with a range-bound movement in a particular script. This strategy is called Short Iron Condor Option Strategy.
Setup is simple: Sell OTM Call & PUT and Buy Further OTM Call & Put to hedge those short Call & Put. Lets us take an example.
Let’s say, Script XYZ is trading at 300, and we want to initiate a short Iron Condor. So the setup is:
Short 320 Call Option & 280 Put Option (Both are OTM strikes) and to hedge these strikes, Buy 340 Call Option & 260 Put option (Further OTM strikes). Payoff Chart looks like this-
Steps to follow for Iron Condor Strategy
The first step is to find a stock that is trading in a range. As you can see this is a Range -bound strategy, so you will get max profit only if the script will remain in your range only.
The second step you can follow is: Find a script that has a high IV (Implied Volatility). High IV means, You will get good credit which will boast your risk: reward ratio.
Iron Condor Option Strategy in SBIN
Before going further, let us look at the chart. You can see SBIN is trading in a range of 340 – 310. Further levels we can expect only after a breakout or breakdown. So It can be a good stock for our strategy. Now let us look at Open Interest data to verify this range.
Open Interest analysis for SBIN
You can see the Highest OI is at 340 CE which is acting as a strong resistance level based on Current data. On the Lower side highest OI is at 300 PE which is acting as a strong Support Level.
PCR at 320 is 2.50 which is acting as an immediate support level. So based on current data, we can say that 340 – 320/310 is the range in SBIN.
Short Iron Condor in SBIN
Now you can see that our breakevens are 306.60 & 343.40. So there will be no loss till SBIN is trading in this range. Now, what should be the adjustments if SBIN is giving a breakout or breakdown.
Scenario One– Shift your put spread to 20 Points UP after a breakout from 345. New Position will be: 330 PUT SELL & 320 PUT BUY.
Scenario Two– Shift your Call spread to 20 Points DOWN after a breakdown from 305. The new Position will be 320 CALL SELL & 330 Call BUY.
You can join our Options Strategies – A Mentorship program to learn some more advanced adjustment in a practical way.
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Options Strategies – A Mentorship Program
On the 1st of September 2019, We have launched a new mentorship program for Option strategies, in which we are discussing how can we deploy these strategies? What rules we should follow before taking a trade? and what should be our adjustments if the script is moving against your direction?
DISCLAIMER: – we are not a SEBI research analyst. Views posted here only for educational purposes. There is no liability whatsoever for any loss arising from the use of this product or its contents. This product is not a recommendation to buy or sell, but rather a guideline to interpreting specified analysis methods. This information should only be used by investors and traders who are aware of the risk inherent in securities trading.