Lecture no 37 short iron condor
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The document outlines the short iron condor options trading strategy, combining a bear put spread and a bull call spread to create a direction-neutral position seeking profit from increased volatility. It details the mechanics, including selling and buying specific strike options, and discusses the strategy's advantages, such as capped risk and low capital outlay, alongside its disadvantages like potential losses exceeding profits. Additionally, it provides guidance on managing the position, exiting trades, and real-world example calculations for better understanding.
![Context - Short Iron Condor
Effect of Time Decay
Time decay is generally harmful to your trade here because you are
looking for a lot of movement in the stock price.
After the position has become profitable, time decay becomes
helpful.
Time Period to Trade
At least months out.
Breakeven Down = [Middle strike - net Debit]
Breakeven Up = [Middle strike + net Debit]](https://image.slidesharecdn.com/lectureno37-shortironcondor-200703114919/85/Lecture-no-37-short-iron-condor-7-320.jpg)
Lecture no 37 short iron condor
- 1. Lecture No 36 Short Iron Condor Rohan Sharma (Coach)
- 2. Basics Concepts – Short Iron Condor Proficiency - Advanced Direction – Neutral Volatility - High Asset Leg – Short Put + Long Put + Long Call + Short Call Max Risk - Limited Max Reward - Limited Capital Gain Strategies
- 3. Description – Short Iron Condor The Short Iron Condor involves putting together a Bear Put Spread and a higher strike Bull Call Spread. The higher strike put has a lower strike than the lower strike call to create the Short Condor shape. The resulting position is profitable in the event of a big move by the stock. The problem is that the reward is seriously capped and is typically dwarfed by the potential risk if the stock fails to move.
- 4. Description – Short Iron Condor Sell one lower strike (OTM) put. Buy one middle strike (OTM) put. Buy one middle strike (OTM) call. Sell one higher strike OTM call. All options share the same expiration date for this strategy. For this strategy, you must use both calls and puts. A Short Iron Condor is the combination of a Bear Put Spread and a Bull Call Spread. The long put strike is lower than the long call strike. Remember that there should be equal distance between the three strikes.
- 5. Context - Short Iron Condor Outlook With short iron condors, your profile is direction neutral. You are looking for increased volatility in the stock price, but you are not concerned with the direction. Rationale With short iron condors, you are looking to execute an inexpensive, capped yield trade where your maximum profits occur if the stock finishes on either side of the upper and lower strike prices at expiration. You are anticipating greater volatility in the stock price.
- 6. Context - Short Iron Condor Net Position •This is a net debit trade. •Your maximum risk is your net debit you pay. •Your maximum reward is the difference between any adjacent strike prices less the net debit.
- 7. Context - Short Iron Condor Effect of Time Decay Time decay is generally harmful to your trade here because you are looking for a lot of movement in the stock price. After the position has become profitable, time decay becomes helpful. Time Period to Trade At least months out. Breakeven Down = [Middle strike - net Debit] Breakeven Up = [Middle strike + net Debit]
- 8. Steps to Trading a Short Iron Condor Steps In Actively seek chart patterns that appear like pennant formations, signifying a consolidating price pattern. Steps Out Manage your position according to the rules defined in your Trading Plan. Remember that the Short Iron Condor is a combination of other strategies, so it can be unraveled in two-leg chunks. You can unravel the position just before expiration—remember to include all the commissions in your calculations.
- 9. Exiting the Trade - Short Iron Condor Exiting the Position With this strategy, you can simply unravel the spread by buying back the options you sold and selling the options you bought in the first place. Advanced traders may leg up and down or only partially unravel the spread as the underlying asset fluctuates up and down. Mitigating a Loss Unravel the trade as described previously. Advanced traders may choose to only partially unravel the spread leg-by-leg and create alternative risk profiles.
- 10. Advantages and Disadvantages Advantages Profit from a volatile stock with little capital outlay. Capped risk. Comparatively high profit probability if the stock moves. Disadvantages The higher profit potential comes with a wider range between the strikes. The higher profit potential only comes nearer expiration. The potential loss is far greater than the amount by which you can profit. Bid/Ask Spread can adversely affect the quality of the trade. Complicated strategy for the intermediate trader.
- 11. Real Time Example Rohan Sharma (Coach)
- 12. Price Movement Position on Charts Rohan Sharma (Coach)
- 14. Example – Short Iron Condor Market Behavior Nifty Option /Future Call & Put Action (Long/ Short) Both Price Movement Expectation Side Ways , High Volatility Expectation Spot Price 10900 Strike Price (Short OTM PUT) 10700 Premium 35 Strike Price (Long OTM PUT) 10800 Premium 70 Strike Price (Long OTM CALL) 11000 Premium 68 Strike Price (Short OTM CALL) 11100 Premium 45 Break Even (Up) (Middle strike + Net Credit) = (10900 + 58) = 10958 Break Even (Down) (Middle strike - Net Credit) = (10900 - 58) = 10842 Time to Expiry Mid/Last of the Month Position of Price in Charts Sideways Max Risk Limited Max Reward Limited
- 15. Short Iron Condor Strike Price (Short OTM PUT) 10700 Premium 35 BEP 10665 Strike Price (Long OTM PUT) 10800 Premium 70 BEP 10730 Strike Price (Long OTM CALL) 11000 Premium 68 BEP 11068 Strike Price Short OTM CALL 11100 Premium 45 BEP 11145 Nifty at Expiry Short OTM PUT BEP - 10665 Long OTM PUT BEP – 10730 Long OTM CALL BEP – 11068 Short OTM CALL BEP - 11145 Total P&L 11400 35 -70 332 -255 42 11300 35 -70 232 -155 42 11200 35 -70 132 -55 42 11100 35 -70 32 45 42 11000 35 -70 -68 45 -58 10900 35 -70 -68 45 -58 10800 35 -70 -68 45 -58 10700 35 30 -68 45 42 10500 -165 230 -68 45 42