Hello guys, I hope you are doing good. Every week I’m sharing one option strategy to share how can we select a strategy and what adjustments we can do in that particular strategy if the script is moving beyond our breakevens. Today I’m sharing a Chicken Iron Condor option strategy in YESBANK.
My motto behind these weekly posts is to share what I have learned till now. So that you can understand the logic behind these options strategies. You can deploy these strategies and can do the proper adjustments to reduce the risk. Click here to check the performance of the posted strategies.
The main reason behind these options strategies is, We want to manage our risk. We want to keep our risk limited so that if the market goes beyond our predictions or when we are wrong, our loss would be very low.
Chicken Iron Condor option strategy
A Chicken Iron Condor option strategy is a directionally neutral, defined risk strategy. Profits we will get if the stock is trading in a range through the expiration of the options. It benefits from the time decay and any decreases in implied volatility. Unlike a regular Iron Condor where we are selling one OTM Call & PUT and buying further OTM Call & PUT to get the benefits for a range-bound activity.
Here in chicken iron condor, we are creating ladders like selling OTM Call & PUT, Selling one or two strikes above the previously sold Call & one or two strike below the previous sold PUT strike and Buying further OTM CALL & PUT with double the lot size. Resulting in a higher payout if we’re correct and lower maximum loss if the move exceeds expectations. We will understand this in the below example.
Greeks behavior in this strategy are: Delta – Neutral, Theta – Long & Vega – Short. Here vega is short which indicates that this strategy is good when IV is high.
Technical and Option chain analysis for YESBANK
Before going further, let us look at YESBANK chart. You can see YESBANK is in a downtrend but there is very strong support is around 30 which act as a hurdle for further downside movement in YESBANK.
On the upside, there is a very good resistance around 45. A breakout from this level will give us some new upside levels. Now let us look at the Open interest data.
Open Interest analysis for YESBANK
Here PCR at 30 is 3.30 which is acting as a first support level. PCR at 40 is 0.40 which is acting as an immediate resistance level for Feb month expiry. Second support and resistance are at 25 & 45 respectively. These are our range based on that we will create a strategy.
IVP Implied Volatility percentile) is at 93, which indicates that Current IV is high and we can expect a drop in IV in coming sessions. Now we are creating a Chicken Iron condor Option strategy based on our calculated range.
Chicken Iron Condor option strategy in YESBANK
Based on the above range, we are selling one lot of 30 PE and 40 CE each (Which is our first S/R) plus selling one lot of 25 PE & 45 CE each (Which is our second S/R) and to give this position a proper hedge, we are buying 20 PE & 50 CE (2 Lots). Now the strategy we are getting is a Chicken Iron Condor option strategy.
You can see here our breakevens are 25 & 45 which is a quite big range. So we will make money until YESBANK is trading between these points. Now, what should be the adjustments if YESBANK is giving a breakout or breakdown?
Now the first thing we need to keep in mind that, we will keep all our sold strike in Out of the money range. Means we will do the adjustments if YESBANK is giving a breakout or breakdown from 30 or 40.
So if Yesbank is giving a breakdown from 30, then the first adjustment is square-off 30 PE and roll down your Verticle call spread to lower level means at 35. The new position will be: 35 CE, 40 CE= short (1 lot) & 45 CE long ( lots). Keep 25 PE and 20 PE as it is.
Same thing you have to do with 40 CE once YESBANK is giving a breakout from 40. Square-Off 40 CE and role up your Put verticle spread to higher levels.
Important Note: This strategy is only advisable for advanced traders. This strategy is not for beginners. SO if you are a beginner or don’t know how to handle your trade, better stay away from this strategy.
You can join our Options Strategies – A Mentorship program to learn some of these adjustments in a practical way.
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Much Check this also- Best Option strategy for a sideways movement in PNB, A high probability options strategy in YESBANK, A high probability option strategy in NIITTECH, Option Buying vs options selling, Modified Condor Option Strategy in VEDL, Bull Call Ladder in ZEEL, Iron Condor in SBIN, Why People Lose Money & Nifty and Bank nifty index analysis with Option Strategy,
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.