Hey Folks! How’s your trading going? Every week I’m sharing one option hedging strategy so that we all can earn together. Today I’m sharing an Iron Condor strategy in ZEEL to benefits the range-bound movement for current month expiry.
Iron Condor strategy is a range-bound strategy and works well in a sideways movement. But how we will know that this particular stock will remain range-bound. For this, I’m following some simple techniques.
In my every article I’m saying that we should keep our system as simple as we can. There is no need to keep things complicated. Simple things will help to make some quick and better decisions for your trade management, which is very important. In this article, I will share how I’m selecting a stock for iron condor strategy. Read this post till the end to find the technique. If you have any query, you can type in the comment box.
What is the Iron Condor Strategy?
Iron condor strategy is a credit spread option strategy to trade for a range-bound activity in the market. It’s a leg strategy and the formation is:
- Sell OTM Call & OTM Put
- Buy further OTM Call & Further OTM PUT (to limit your risk)
It’s a limited Risk & Limited reward strategy. The beauty of this strategy is, You know before entre in any trade that how much maximum you can lose or how much is the maximum profit from this strategy.
And if you think that risk is high or return is low, you can optimize it in such a way that it can fit in your risk management rules. Let’s see. I can take the maximum risk of 8000₹ in any trade. And in the current strategy, my risk is around 12000₹.
So, I can optimize it and can easily reduce my risk to 8000₹. To do that you can simply reduce the spread means, reduce the gap between bought and sold strikes. Let’s understand this with the below formula:
- Potential loss = Spread – Credit receive
Let’s take an example, You are creating a strategy with a spread of 200 points and the premium you have received is 50₹ so the maximum loss = (200 – 50) = 150 points. Now if you reduce the spread to 150 points and the premium you are getting now is 40₹ then you maximum risk = (150 – 40) = 110 points.
But optimizing a strategy and placing the trades is just one part. Your profit will come from how well you manage your trade. Your trade management will decide how much you will make or break. Why I’m saying this?
The reason is: the data we are following is legging data. Which can change anytime. The range we are getting from the data can change tomorrow. So if you don’t know what will you do if the script starts moving against your prediction, your profitability to make money is less compared to the one who knows how to adjust his/her position in that case.
That’s what we are focusing on in our Option Strategies – A Mentorship program. I’m not teaching you how to place a trade but helping you to manage that trade. What should be your adjustments? When to react and when not to react? How to optimize your strategy? What should be your adjustments?
Every backend support you need to trade these options hedging strategies, you will get here. I will be there to assist you in the live market through Whatsapp and our telegram group (with lifetime access). We will work together, we will earn together. Sound Good?
How to select a stock for Iron Condor Strategy?
Now when you plan to go with the Iron Condor strategy, the First thing you have to keep in mind is: It’s a credit spread strategy. So if you are collecting a good premium that will increase your profit and reduce the risk. Now How you can scan the stock to find high-premium stocks?
The answer is simple: High Implied Volatility means High Premiums and High premiums mean High credit. So you can scan stocks and find a stock that has high Implied Volatility (IV). Here you can follow IVR (Implied Volatility Range) or IVP (Implied Volatility Percentile) to select a high IV stock. High IVR/IVP means high IV. So select a stock that has a high IV to get good credit.
Now the second most important factor is Liquidity. If the options of that particular script are not liquid then no use to initiate a strategy. Because you will lose your entire credit in entry and exit from that option. To check the liquid, you can use the NSE OPTION CHAIN. Check the BID/ASK spread. If the difference in the BID and ASK is high that means the option is not liquid. We should avoid that stock.
Now the third step is to find the range for that stock with the help of a chart and Open Interest analysis.
How to find the range for Iron Condor Strategy?
To find the range you can use support resistance based on the technical chart and open interest data. Let’s look at the ZEEl chart first.
If you look at the chart, you will find that ZEEL is trading in a range of 150 – 200. These can be your support and resistance respectively. Let’s confirm this with the help of Open Interest analysis.
Based on the Option chain data, Highest OI is at 200 CE and 150 PE. The same range we are getting from the getting from Open interest. So based on this range we can initiate a strategy.
Always Remember The range we are getting based on the current data. This data can change anytime. So before initiating a strategy, you should have a backup plan, which means you should keep your trade management plan ready like what should be your adjustments if you will get a breakout or breakout from this range.
If you can manage that trade, then only you should go with your strategy. So if you want to learn proper trade management, I suggest you should enroll in our Option Strategies – A Mentorship program. The fee is just your one-stop-loss.
Iron Condor strategy in ZEEL
Above is the Iron condor options strategy in ZEEL. Breakevens are 150 – 200 means you don’t need to do anything till ZEEL is trading between this range. If you are getting a breakout or breakdown from the breakevens, you can make the following adjustments:
- Shift your Put Spread to higher levels and convert it into an iron butterfly after a breakout from 200.
- Shift your Call Spread to the lower level and convert it into an iron butterfly after a successful breakdown from 150
I hope my articles are helping to trade with proper risk management. What are you following to manage your trade and your risk management? Do let me know in the comment box.
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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 article 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.