Short Iron Condor Strategy
Short Iron condor strategy is one of the most common and popular strategy in option Trading in which It involves both option buying & option selling. Its one type of strategy in which you can make profit from less volatile market by managing risk.
Here’s how this short iron condor strategy works:
- You’re going to choose any underlying which is going to be stable in a short-term period and it is one of the important points because short anaconda start is it gives profit from low volatile market.
- Call side you will be selling an out of the money call option with the strike price which is above the current market price and you’ll be buying very far OTM call option.
- Put side you will be selling the OTM put option with the strike price which is below the current market price and buying very far OTM put option.
- Important point to note first you need to buy the Ce & Pe option and then sell Ce & Pe option; this is how you can enter this trade with the lesser margin benefit.
Short iron condor strategy is for collecting the premium from Ce & Pe selling options, the scenario of maximum profit in this strategy is from the premium delta and time decay, the maximum loss is the difference between the strike of Ce & Pe option mins the premium collected.
It’s important to note that the short iron condor strategy is a is only best suited for low volatility market. If the underlying is moving in volatile in order direction, then you can result in loss. If you know how to do and right adjustment, if at all the market is moving in a volatile way, you have to do strike shifting which can shift from a loss to moderate Profit.
However, it is important you to choose the right underlying asset and have perspective it will be in a range not volatile in one side direction in order to avoid losses.
Adjustment in short iron condor strategy need to be done when the underlying asset is moving above the strike price which have sold in option or else you can have certain percentage of stop loss on the premium you have sold.
Some adjustment technique that you can use in order to limit your losses:
1. Shifting CE Sell Position:
If the underlying security is moving towards up side, then the call option which you have sold you need to buy (closing the call sell position) and sell a new call option with the highest strike price from the current market price. This adjustment will reduce losses and you can increase your profits if the underlying asset remains below the new call options strike price which you have sold.
2. Shifting PE Sell Position:
If the underlying security is moving towards down side, then the Put option which you have sold you need to buy (closing the put sell position) and sell a new PUT option with the highest strike price from the current market price. This adjustment will reduce losses and you can increase your profits if the underlying asset remains below the new Put options strike price which you have sold.
3. Adding and long position:
If the underlying asset is moving against your strategy, you can consider adding a long position to the existing short anaconda strategy by which you can increase your profit of the trade while also limiting the losses.
It is also very important to note that the adjustment strategy should be should be done based on your personal risk and market analysis. Last but not the least, it is also important to monitor the position so that you can ensure that the adjustment or done in timely manner.