Are you looking for a high probability option strategy that can help you make money in the market?
If so, you're in luck! In this article, we will discuss one of the most popular high probability option strategies: the iron condor.
The iron condor is a neutral strategy that can be used to profit in a variety of market conditions. It is relatively easy to understand and execute, and it offers a high probability of profit.
In this article, we will explain how the iron condor works, and we will provide some tips for using it successfully. We will also discuss some of the risks associated with this strategy.
So if you're looking for a high probability option strategy that can help you make money in the market, then read on!
Here are some of the benefits of using the iron condor strategy:
- High probability of profit: The iron condor is a neutral strategy, which means that it does not have a directional bias. This makes it a good choice for traders who are not sure which way the market will go.
- Limited risk: The maximum risk of an iron condor is limited to the upfront cost of the options. This makes it a relatively safe strategy for traders who are new to options trading.
- Flexible: The iron condor can be customized to fit a variety of risk profiles and investment goals. This makes it a versatile strategy that can be used by traders of all experience levels.
If you're interested in learning more about the iron condor strategy, then be sure to read our detailed article by visiting the below link!
3 Steps to create a high probability option strategy
Before going further let me share 3 steps that I follow to initiate a high probability option strategy.
- The first step is to check the liquidity of the script.
- The second Steps check the premium.
- Last and the third step is to check the range.
In short for a high probability option strategy, we need a stock that has high liquidity, high premium and trading in a range.
How to check the liquidity for a high probability option strategy?
First and the basic thing is: Options of that particular script must be liquid. How to find whether options are liquid or not?
Go to NSE Option Chain and check the Bid/Ask spread. If the difference in Bid/Ask is high that means options are not liquid and you will lose so much money just by taking entries and exits. Let me share an example:
The above Picture is the SBIN option chain, You can see on every strike, the difference in Bid/Ask is very low, which means you will not get any issues when you are going a place an order in this script. Now look at the below picture:
The above screenshot is EQUITAS Option Chain. Now look at the difference in Bid/Ask, Difference is around 0.50, and the lot size is 4900, which means 2450₹ you will pay just by placing an order of only one leg in Equitas. Now I think you calculate yourself, what could be the cost for a four legs strategy?
Whereas in SBIN it's just 0.05 – 0.10 i.e. 150₹ – 300₹. and plus look at the volumes that are very low in EQUITAS compared to SBIN. This indicates that SBIN is more liquid compared to EQUITAS.
So select a stock that is highly liquid. This is the first and the basic thumb rule to select a stock for a high probability option strategy.
Next 2 steps we will learn through the example of COAL India. So, let’s come to our high probability option strategy in COAL India:
A high probability option strategy in COALINDIA
The second thing is, nowadays volatility is high in the market which is giving a good opportunity to initiate a credit spread option strategy. Today our High probability option strategy in COAL India is basically a credit spread.
You can create these strategies on those stocks where IV is high. In Coal India, you can see IV is high compared to annualised volatility.
I teach in detail about how to use IV to find high probability option strategies in my Mentorship program. You can enrol and learn by clicking on the below button:
The third thing we should keep in mind is that we should select a script that is trading in a range. Now, look at the chart of COALINDIA. Based on the chart, 220 - 240 is the range in which COALINDIA is trading nowadays. So we have to select a strategy which can give us a good return between this range.
We can confirm this range with the help of Option chain analysis. Let’s look at the Open interest of COALINDIA:
COALINDIA: Option chain analysis
We can see good open interest around 220 PE and 240 CE. So we can say that 220 is acting as good support and 240 is acting as good resistance.
So it’s confirmed that OI too giving us the same range of 220 - 240 in COALINDIA for August expiry.
A high probability option strategy in COALINDIA
As you can see our breakevens are 223 & 241, so this option strategy will give you a good return if COALINDIA expires between 220 - 240.
You can follow 220 & 240 as your stop-loss levels. means if COALINDIA hit and sustains beyond these levels you can close this trade. The second thing you can keep 7000₹ as a stop loss, if you are losing more than 7000₹, book a loss and close this trade.
Possible adjustments: If COALINDIA gave a breakdown from 220, You can shift your sold call (240 CE) and bought call (245 CE) to 225 CE and 230 CE respectively. The same thing you can do with Put Spread i.e If COALINDIA gives a breakout from 240 Shift your Sold PUT (225 PE) and bought PUT ( 220 PE) to 240 PE and 235 PE respectively.
You can join our Options Strategies – A Mentorship program to learn these strategies and their adjustments in a practical way.
I hope my articles are helping in your profitable trading. If you have any feedback or suggestions please type in the comment box. Your feedback will help me to do something better in the future.
Please type your queries related to a high probability option strategy in COALINDIA in the comment box. I will try to answer all your queries.
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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.