Iron Condor

An iron condor is an options trading strategy designed to profit from low volatility in the underlying asset, such as the Nifty in this case. It involves combining two credit spreads: a bullish put credit spread and a bearish call credit spread. This strategy aims to generate income by selling out-of-the-money (OTM) put and call options while defining the maximum potential loss.

Here's how to construct an iron condor on the Nifty with the Nifty index at 20,000:

Assumptions:

• Current Nifty Index Level: ₹20,000
• Expiration Date: One month from today

Constructing the Iron Condor:

1. Determine Strike Prices:
   • You will choose four strike prices, typically equidistant from the current Nifty index level. Let's use
   • the following strikes:
     • Sell an OTM Nifty put option with a strike price of ₹19,600 (bearish put credit spread).
     • Buy an even lower strike Nifty put option with a strike price of ₹19,250 (to limit potential losses on the put side).
     • Sell an OTM Nifty call option with a strike price of ₹20,400 (bearish call credit spread).
     • Buy an even higher strike Nifty call option with a strike price of ₹20,750 (to limit potential losses on the call side).
2. Same Expiration Date:
   • Ensure that all four options (two short and two long) have the same expiration date, typically one month from the trade date.
3. Premium Calculation:
   • Calculate the net premium you receive for the iron condor by subtracting the total premiums paid for the long options from the total premiums received for the short options.
   • Net premium earned = - 3.45 (19250 Put Buy) + 6.7 (19600 Put Sell) - 2.3 (20750 Call Buy) + 2.9 (20400 Call Sell) = ₹3.85
4. Risk and Reward:
   • The maximum profit is limited to the net premium received. It occurs if the Nifty index closes between the two short strikes (19,600 and 20,400) at expiration.
   • The maximum loss is capped and occurs if the Nifty index moves significantly beyond the long strike on either side. The loss is limited to the width of the spreads minus the net premium received.
5. Breakeven Points:
   • The upper breakeven point is the short call strike (20,400) plus the net premium received. = ₹20403.85
   • The lower breakeven point is the short put strike (19,600) minus the net premium received. = ₹19596.15

Keep in mind that options prices and market conditions can change, so it's crucial to analyze specific options available and their premiums at the time of your trade. Additionally, always practice proper risk management and consider consulting with a financial advisor or options expert before implementing complex options strategies.