Hello guys! I hope your are doing good. In my 12+ years of trading career, I have followed 100s of trading setups but after using hedging strategies, I completely switched on these strategies. I started this blog also to share these strategies with you.
Today's I'm sharing a Mouse Ear Iron Condor options strategy in TATAMOTORS for October, 2023 expiry. So read this post till the end to know what this strategy is and why I choose Mouse Ear Iron Condor options strategy in TATAMOTORS.
Before we move to our strategy, lets understand what Mouse Ear Iron Condor options strategy is?
What is Mouse Ear Iron Condor options strategy?
A mouse ear iron condor is a variation of the iron condor options strategy. It is a directional neutral strategy that profits when the underlying asset price remains within a certain range.
To construct a mouse ear iron condor, a trader will:
- Buy one lot out-of-the-money (OTM) call option
- Sell 3 lots further OTM call option
- Buy 2 lots further OTM call option
- Buy one lot OTM put option
- Sell 3 lots further OTM put option
- Buy 2 lots further OTM put option
It's a ratio spread with 1:3:2 or 1:4:3. Below is the example of Mouse Ear Iron Condor options strategy in Nifty:
The strike prices of the options are chosen so that the two short options are closer to the at-the-money (ATM) strike price, and the two long options are further OTM. This creates a "mouse ear" shape on the options profit and loss (P&L) diagram.
The maximum profit on a mouse ear iron condor is equal to the net credit received when the trade is entered. This profit is achieved when the underlying asset price expires between the two short strike prices.
The maximum loss on a mouse ear iron condor is limited to the difference between the strike prices of the two short options, minus the net credit received. This loss occurs if the underlying asset price expires outside of the two short strike prices.
Mouse ear iron condors are typically used in low-volatility markets. They can be a good way to generate income while reducing risk. However, it is important to note that mouse ear iron condors are still subject to market risk.
Advantages of mouse ear iron condors:
- Lower risk than a regular iron condor
- Wider profit range
- Less vega exposure
Disadvantages of mouse ear iron condors:
- Lower potential profits than a regular iron condor
- More complex to construct and manage
Overall, mouse ear iron condors can be a useful tool for options traders who are looking for a lower-risk strategy with a wider profit range.
I hope now you have understood what Mouse Ear Iron Condor options strategy is. Lets move to our strategy in TATAMOTORS.
Mouse Ear Iron Condor options strategy in TATAMORORS
Now you knew that its a range-bound strategy. So we need a script which is trading in a range. Now lets looks at the chart of TATAMOTORS:
You can see TATAMOTORS is trading in a range of 600 - 650 from last few months and there is no fresh breakout or breakdown from this range. So TATAMOTORS is the good candidate for our Mouse Ear Iron Condor options strategy.
Now Lets look at the Open Interest data also to confirm this range:
Based on the OI data also, 600 - 650 is the range that TATAMOTORS is holding for the current expiry. We can use this range to initiate Mouse Ear Iron Condor options strategy in TATAMORORS for October Expiry.
Mouse Ear Iron Condor options strategy in TATAMOTORS
Now lets move to the strategy in TATAMOTORS for October Expiry:
To manage this strategy, you can keep 595 & 655 as stop loss and if there is any breakout or breakdown from the range, you can close this strategy.
₹10000 is the Maximum risk (1 lot) I’m keeping for this Batman option strategy. This means, anytime I’m getting lost more than ₹10000, I will square off this strategy. I will do some advanced adjustments also like reverse buying to reduce the overall maximum risk.
This advanced strategy along with other monthly income strategies is part of our Option Strategies: A Mentorship Program. If you want to learn how one can make passive income through option strategies, must enroll in this unique program.
I will share the adjustments in my premium telegram channel also. To get access to that telegram channel, either you can join the mentorship program or can buy a monthly subscription for the premium channel where I’m sharing all the option strategies I’m creating every month with timely updates about adjustments. Checks the links below:
In case if you have any query related to this strategy, can type it in the comment box.
Thank you for reading this post. Have a profitable trading!
DISCLAIMER: We are not SEBI research analysts. Views and trading strategies are posted in this weekly market newsletter 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 for interpreting specified analysis methods. This information should only be used by investors and traders aware of the risk inherent in securities trading.