14.1 – New margin framework
These are fascinating times we are living in, especially if you are an options trader in India 🙂
Starting 1st June 2020, NSE’s new margin framework is live, which essentially brings down the margin requirement for the hedged position.
What is a hedged position you may ask? Well, we have discussed this several times in this module, but for the sake of completeness of this chapter, we will quickly discuss this again.
Assume you are riding a bike at 75Kms per hour, without wearing a helmet. Suddenly you come across a pothole, you slam the breaks to cut speed, but it’s too late, you crash and fall. What is the probability of injuring your head? Quite high given the fact that you are not wearing a helmet.
Now imagine the same situation, but instead of being carefree, you decide to wear a helmet. Given the crash, what is the probability of injuring your head? Low probability, right? Because the helmet protects you from an injury.
The helmet acts as a hedge against a potential disaster.
In the same way, a naked futures or options position in the market is like riding a bike without wearing a helmet. The risk of market-moving against your position, causing capital erosion is high.
However, if you hedge your position, then the risk of losing capital reduces drastically.
Now, think about this – if your capital loss is minimal, then it implies that the risk for your broker is also minimum right? Now, if the risk for the broker reduces, it also means the risk for the exchange reduces.
So what does this mean to you as a trader?
Remember, the critical margin dynamics – the lesser the risk you carry, the lower the margin requirement. Higher the risk, higher the margin requirement.
Therefore, this means whenever you initiate a hedged strategy, the margins blocked by your broker is less compared to the margin required for a naked position.
In essence, NSE has proposed the same in the new margin framework.
You can check this presentation by NSE for more details.
The presentation is quite technical; you do not have to crack your head to understand this unless you really want to.
From a trader’s point of view, there are three key takeaways from the new margin policy; all the three highlighted in 1 slide of this presentation, here is a snapshot –
Starting from the top –
- Portfolio 1 – Margins have increased for naked unhedged positions to 18.5% from the current 16.7%.
- Portfolio 2 – 70% reduction in margins for market-neutral positions
- Portfolio 3 – 80% reduction in margins for spread positions
What does this mean to you as an options trader?
Well, some of the useful strategies, which looked great on paper but were prohibitive to implement due to excessive margin requirement, now look enticing.
A trick question for you here – why do you think the margin reduction is higher for spread position compared to a neutral market position?.
Do think about it and post your response in the comment section.
So given this, I want to discuss one more options strategy in this module, I had not discussed it earlier since the margin requirement was very high, but now, it’s no longer the case.
14.2 – Iron Condor
The iron condor is a four-legged option setup. The iron condor is an improvisation over the short strangle.
Have a look at this –
I’ve taken this snapshot from Sensibull’s Options Strategy Builder. As you can see, Nifty is at 9972.9, and I’m trying to set up a short strangle by shorting OTM calls and puts –
- 9800 Put at 165.25
- 10100 Call at 145.25
Since both the options are written/sold, I get to collect a total premium of 164.25+145.25 = 309.5.
For those of you not familiar with the strangles, I’d suggest you read through this chapter.
The pay off for this short strangle set up is as follows –
I love this strategy because it lets me retain the premium as long as Nifty stays within a range, which most often it does. Besides, this is also a great way to trade volatility. Whenever you think the volatility has shot up (usually it does around big market events) and therefore the option premiums, then you’d want to be an options seller and pocket the high premiums. Short strangles is perfect for such trades.
In a short strangle, since you sell/write options, it results in a net premium credit. In this case, you get a premium of Rs.23,288/-.
The only issue with short strangles is the exposed ends. The strategy bleeds if the underlying asset moves in either direction.
For example, this particular short strangle has a range of safety between 9490 and 10411.
I agree this is a wide enough range, but markets have taught that it can make crazy moves within a short period. Most recent being the COVID-19 crash in early 2020 followed by quick recovery from the lows.
If you are caught with such a rapid market move, the potential loss can be colossal and can wipe your account clean. Now, because the possible loss is unlimited, this means the risk to you and the broker is quite high. Eventually, this translates to higher margins as well –
The margin to set up a short strangle is nearly 1.45L, which is quite prohibitive for many traders.
However, this does not mean that you have to say goodbye to a short strangle. You can improvise on the short strangle and set up an iron condor, which in my opinion is a far better strategy.
An iron condor improvises a short strangle by plugging in the open ends. Think of an iron condor in 3 parts –
- Part 1 – Set up a short strangle by selling a slightly OTM Call and Put option
- Part 2 – Buy a further OTM Call to protect the short call against a massive market rally
- Part 3 – Buy a further OTM Put to protect the short Put against a massive market decline
This makes an iron condor a four-leg option strategy. Let us see how this looks –
- Part 1 – Sell 9800 PE at 165.25 and sell a 10100CE at 145.25, collect a premium of 310.5 or Rs.23,288/-.
- Part 2 – Buy 10300 CE at 77 to protect the short 10100 CE
- Part 3 – Buy 9600 PE at 105.05 to protect the short 9800 PE
The trade setup looks like this –
If you think about this, the short option premium collected finances the long option positions.
Since you buy two options to protect against two short options, the profit potential reduces to a certain extent –
As you can see, the max profit is now Rs.9,634/-, but the reduced profit comes with reduced stress 🙂
The max loss is no longer unlimited but restricted to Rs.5,366, which in my opinion is awesome because I now have visibility on risk and it is not open-ended.
The profit is restricted, as long as Nifty stays within a range, in this case between 9672 and 10228. Notice, the range has shrunk compared to the short strangle.
The payoff of an iron condor looks like this –
Now, what do you think about the risk? The risk here is completely defined. You have clear visibility on the worst-case scenario. So what does it mean to you as a trader, and what does it mean to the broker?
You guessed it right since the risk is defined, the margins are lesser.
This is where the new margin framework of NSE comes into play. An iron condor requires you to pay an upfront margin of only Rs.44,303/-, contrast this with the short strangle’s margin requirement of Rs.1.45L.
Besides, before the new margin framework, executing an iron condor was not very viable for a retail trader. For these strikes and premiums, the margin requirement for an Iron Condor was roughly in the range of 2 to 2.2L.
14.3 – Max P&L
There are a few important things you need to remember while executing an iron condor –
- The PE and CE that you buy should have even strike distribution from the sold strike. For example, here we have sold 9800 PE and 10,100 CE. We have protected the sold strikes by going long on 9600 PE and 10,300 CE. The difference between 9800 PE and 9600 PE is 200 and 10,100 CE and 10,300 CE is 200. The spread should be even. I cannot protect 9800 PE by buying 9700 PE (difference of 100) and then protect 10,100 CE with 10,300 CE (difference of 200).
- The Max loss occurs when the market moves either above long CE i.e. 10,300 CE or moves below long PE i.e. 9,600PE
- Spread = 200 i.e. the difference between the sold strike and its protective strike.
- Max Profit = Net premium received. In this case, it is 128.45 (9634/75)
- Max loss = Spread – Net premium received. In this case, it is 200 – 128.45 = 71.54.
I’d suggest you look at the excel sheet at the end of this chapter for detail working of this. Please note, I have updated the excel sheet 2 days after I wrote this chapter, hence the values are different.
14.4 – ROI and Logistics
By setting up a short strangle, you receive a premium of Rs.23,288/- and for the iron condor, the premium receivable is Rs.9,643/-. Agreed, in terms of absolute Rupees, the iron condor offers a far lesser premium inflow. But when you measure this against the margin requirement, the ROI flips in favour of the Iron condor.
Short strangle requires a margin of Rs.1,45,090/-. Therefore the ROI is –
23,288/1,45,090
=16%.
The margin requirement for iron condor is Rs.44,303/-. Therefore the ROI is –
9,643/44,303
= 21%
As a trader, you need to think in terms of ROI and not absolute numbers, and the margin benefit makes a significant difference here.
The sequence of trade execution makes a big difference here. If you are considering an iron condor, then here is the trade sequence –
- Buy the far OTM call option
- Sell the OTM Call option
- Buy the far OTM PUT
- Sell the OTM PUT option
The point here is that you need to have a long position first before initiating the short position.
Why? Because short option position is a margin guzzler, so when you have a long position, the system knows the risk is contained and hence will ask you for lesser margins for the short position.
Please note, I’ve only considered the margin blocked for the ROI calculation, I’ve not considered the money paid to buy the options and the money received when you write an option.
So traders, as a next step, I’d urge you to select different strikes for the long positions and see what happens to the premium receivable, breakeven points, and the max loss.
Do post your observation and queries below.
Key takeaways from this chapter
- NSE’s new margin framework reduces the margin requirement for market neutral and hedged strategies
- While the short strangle is an excellent strategy, it has open ends with potentially unlimited losses
- The iron condor is an improvisation over the short strangle
- In an iron condor, the long OTM calls and puts protect the open ends of the short strangle
- Margin required for an iron condor is far lesser compared to a short strangle
Download Iron Condor Excel Sheet
If the trade is going in the direction desired, should te the whole trade be just left to expire ..till June end , meaning just let them expire..all 4 legs ?? Kindly clarify
Yes, that’s when you’ll get to squeeze out the entire premium. Btw, there is no desired direction here 🙂
hi karhik.iron condor is better over short strangle.would u plz highlight on iron butterfly.
I’ll try and do that sometime soon.
Thank you for Iron Condors.. It was today only that I was looking forward to studying Iron Condors. What a coincidence 😀
Regarding the trick question, the Put Call Parity Arbitrage, even though has a synthetic long and short futures position, there is still 1 short put and 1 futures short, both of which will require big margins when done naked. Due to the volatility in market and M2M everyday, higher margin is required for these 2 positions than just 1 short position on calls in the Bull Call Spread.
Am I correct?
That also. The main thing is that the delta-neutral strategy may not remain delta neutral if the market start to move in a particular direction. These positions need constant adjusting to make it remain delta-neutral. The example highlighted here may not be the best for what I just said, but something thing like a straddle and strangle is.
And the payoff of market neutral is actually zero (not considering transaction costs) when held till expiry.. Also more scope to exit out of 1 leg of a trade. If getting out of the bought call prematurely, then short put and short futures both have risk to the downside and it won’t be a hedged position anymore
Pay off is not zero. I mean why would you want to initiate a strategy if the pay off is zero right? The pay off is the difference in spread. The risk of exiting one leg remains with other spread as well.
Not sure why this did not come as a reply to previous comment
@ Karthick,
will the new margin framework be applicable to stock FnO? and if yes. How will it behave in the last week of expiry for a perfectly hedged strategy since the margin requirements will jump of for naked positions due to delivery
Yes, it is applicable to all F&O. For naked positions, the margins will be high, Sujeet.
hi karthik.in sensibull/zerodha is capital required and margin required are two different amount or capital required is inclusive of margin money.
They are the same things.
How to execute all the 4 legs at the same time in zerodha kite…when can we expect the basket orders in zerodha?
Hopefully soon, Dinesh 🙂
Hi Karthik,
Appreciate the lucid explanation here.
Anything similar to this in Futures trading too?
Thanks !
Similar in the sense?
I read all the chapters in options and option strategies in varsity. And found the idea of selling option outside 1SD very good. But then the margin requirements made it not feasible. As soon as the new margin policy is implemented I sold options 1SD away on June 3 and hedged them sir. Thank you for teaching us all these.
Good luck, Saravana! Happy trading 🙂
Market neutral strategy has a future position embedded in it. Since the MTM in futures is cash settled it has a higher margin and more over the margin for naked futures is itself higher than naked short options.
That as well, plus I’ve also started another reason in the comments above.
I am unable to place far OTM options. If I embale TOTP, will I allowed to do so?
No, TOTP is not for penny stocks, not for far OTM options 🙂
But now is ZERODHA allowing to trade in far OTM options like 1000 points difference with all expiry dates ? Because for most of the retail traders, this IRON CONDOR strategy works best with far OTM options ONLY.
At least, after reducing new margin requirements, ZERODHA should allow to trade in far OTM options.
We are working on this, Amit. Plus this is only with bank Nifty.
hello karthik.yesterday i initiated a virtual trade.iron condor set up made.short nifty PE strike9950 @151.95, short CE [email protected],,
buy CE [email protected] buy PE 9750@ 72.IV when trade initiated was 30.22.today the trade was on negative side as IV was 40%.what should be my stand now? should i wait till expiry or square off the position .if i wait till expiry if i suffer loss would it be capped as per strategy or more than that can happen.
Depends on your view on volatility. If you expect it to increase more, then the losses will mount. However, the max loss is already defined.
As per margin calculator of zeordha
It require 90000 for the follwing trade
Nifty Buy 75
Nifty put 10000 buy 75
Nifty Call 10300 short 150
But when actually trading margin require is more than 180000
Please help for this
Your trade looks incomplete. There should be 2 long and two short trades.
Can u pls explain how the loss of rs 5366 is calculated from this trade.??
Thankyou.
Ah, maybe I should have put up the excel calculation, but I just took the values straight from Sebsibull 🙂
Could you please share xls sheet for reference (similar to short strangle)?
I’ve not built that thinking Sensibull’s platform would suffice 🙂
Hi Karthik,
Thanks for Yours new post.I have Read all Yours Post and Reading still to understand better ☺
I have a question :using straddle,stangle and Iron Condor why are we calculating Low and High break even points using premium instead we can use 1SD/2SD ? is is not that much useful?
The strategy is independent of SD, it is dependent on the strikes. SD is an arbitration based on prices.
In example premium received may be higher than premium paid. In dynamic Market premiums are continuously changing. In any set of time is premium received is higher than premium paid? If we executed two longs first, then later two shorts. The planned payoff calculation may change beyond our view. I think if we execute four orders at a time with high speed, then our calculations and view may be protected. Please let me know am I right.
The point in that you are shorting strikes closer to ATM and going long on strikes which are further away from the ones you’ve sold. Hence the premium for short will always be higher than the longs, hence this will result in a net credit.
Hi Karthik,
Can u please put up the detail excel sheet for iron condor, it helps us understand the max loss calculation as well.
Zerodha is doing a wonderful job by educating us with varsity. cheers
Thanks, Naveen. I’ll try and do that.
Hi Karthik,
in sensibull it shows , capital required and margin required are two different amounts, can you elaborate more on this? ..if possible with example
In Sensibull, capital = margin + buy option premium. Margin only shows the free cash.
Hi Sir,
Thanks for the knowledge sharing.. How the iron condors will kept delta if the spot price moves away from the range?
If the spot moves away from the range, losses will occur, but they are capped anyway.
Hi Karthik,
Thanks for sharing it but please share it’s excel sheet calculation as you shared for other strategies.
Here we receive net premium ₹128 so the upper breakeven point is 10228 and maximum loss would be at 10300 and it would be (10300-10228=72).
Lower breakeven point is 9672 and maximum loss would be at 9600 (9672-9600=72). Right?
Arvind, I just took the values from Sensibull 🙂
I’ll update this chapter with an excel template soon.
Hello Karthik
Good Morning!
Is their any link on exit strategy or Settlement for options on or before expiry date explained?
Not really, these are good to be held till expiry to juice out the entire premium. However, you can exit before expiry based on the P&L.
Sir
Pls provide excel sheet
Yes Sir, will do.
Margin reduction is higher for spreads since you are still paying some premium to put on the position. In an ideal world if you are buying a call spread or put spread as a package you dont need to post any margin whatsoever
Yeah, unfortunately, we don’t have that as a product. Guess the exchange should offer this.
Can we have a customised selection of constructing an iron condor as also other multi legged option strategies in the Kite app?
This feature is available with Dow jones/ Nasdaq brokerages.
Also, a customised margin calculator app to support kite is to be developed
This is should be available with the exchanges until that happens, brokers cannot offer.
Sir
In neutral strategies risk is limited, so any stop loss order is required for each leg.?
No, the strategy itself is hedged.
Sir
In iron condor strategy if stock is between the range on expiry, then will get the all the premium collected right?
Yes, you will.
Sir
Please explain iron butterfly strategy, is it better than iron condor?
I will probably add this as well.
Sir
when will be the best time( means no. of days before expiry) to enter trade for weekly and monthly options with neutral strategies?
There is nothing like the best time, depends on how you intend to trade the market.
sir, how i place the order for margin benefit. sell OTM banknifty put and call.
Place the buy leg first and then the sell leg.
plz add and explain iron condor strategy adjustment for more learn and knowledge
thanks
Check the excel sheet, I have updated it today.
The margin reduction is indeed a boon for retail investor and broker who can attract more investors. I would appreciate Zerodha provides a Basket / Strategy builder (currently available in Sensibull for paid members) to Zerodha users.
Thanks,
Subramanian
Hopefully soon Sir 🙂
Hi Karthik,
Firstly thank you very much for all the knowledge you are sharing. It has really helped many retail traders like me to increase their understanding in the markets and concepts crisp clearly.
My question- Why is zerodha not letting trade far OTM’s??
Though the margin requirement is less for all the hedged positions, the credit we receive is also less.
I see the strikes above 10% from spot are not allowed but it would be more beneficial if the 10% limit is increased.
Thank you
Swetha
Swetha, this is mainly due to OI restriction. I guess all strikes are allowed for weekly expiry.
Hello Sir, If I have total 60k in my trading account and I want to do iron Condor for 1 lot of Nifty in monthly expiry. Can I do or not?or add some money for margin requirement…..as per my opinion my risk and reward is defined so 60 k is enough for me,,, please regard me am I right or wrong
I guess you can, the margin required is around 45K.
Karthik, I tried placing far OTM order for weekly expiry couple of times but I was not allowed to buy or sell.
All strikes were allowed for weekly today. I’m not sure why it was rejected. Can you please touch base with our support desk for this? Thanks.
Karthik Rangappa – The Grand Master has explained this in such a lucid manner!! I owe it to you a lot on learning through Zerodha Varsity on the basics of Options and Options Strategies. Now, with the revised margin rules, Irom Condor comes in as a special learning gift. Thank you for all the hard work and passion you invest!
Please can yo explain in your inimitable style;
1. How to achieve a risk:reward of atleast 1:2 while designing the Iron Condor?
2. How beneficial (again from a risk:reward perspective) is the Iron Butterfly to Iron Condor?
3. Lastly, Iron Condor / Iron Butterfly calendar spread (sell Strangle / Straddle in monthly and buy protection in weekly) – is that really bulletproof safe?
Thanks for all the kind words, it very encouraging 🙂
1) Very tough, but look selling strikes which are close to ATM and protect this with strikes slightly away from ATM
2) They are similar, but RRR of 1:2 is possible with the butterfly
3) Nope, they all need to have similar expires.
Sir, does that mean, when implementing the strategy from Kite, we will need both the margin and the money to buy the options?
Say, 44k margin to sell, and 20k option premium for the buy legs, then total capital required for implementing the strategy is 64k?
Also, you said: “The difference between 9800 PE and 9600 PE is 200 and 10,100 CE and 10,300 CE is 200. The spread should be even”.
Why should the spread be even? If it is not even, I am guessing the max loss on one side will not be equal to the max loss to the other side. So we will have 2 types of max losses.
Thats right, 44K is to sell, you need to add the money to buy as well. True, when the spread is not even, the loss will be uneven, which is still ok if you have a directional bias. But it kind of defeats the purpose because you are better of with a bull call spread or a bear put spread for directional bets.
How to place all leg order simultaneously for Iron Condor to get the margin benefit, When i am placing order separately i am not getting benefit of low margin
Did you place the buy leg first? Please follow the sequence explained in the chapter.
Please post how to do adjustment if trade went against views.
Vijay, the iron condor is completely adjusted, that’s why we have 4 legs. All the outcomes are known before you initiate the trade.
Sir, I am new to option selling. I am confused about the margin requirement logistics of the trade.
1) buy far OTM call -> we will need money
2) sell OTM call -> margin blocked (around 30k), but we will also receive premium
3) buy far OTM put > we will need more money? or the payment can be done from the received premiums on 2nd trade?
4) sell OTM put -> more margin blocked (to around 44k as per the example), but we will also receive premium
I am guessing that, since premiums are received into account at end of day (I don’t know whether it is T+1 or T+2 for options, so considering same day – end of day due to M2M), so at the time of the trade setup, we will need full margin + option buying amount.
say we started from 1 lakh account
after trade executed: margin (44k) + 21k (option buying premium) = 65k
thus 35k remaining in account.
but after M2M, we will receive the option premiums of say 30k, since it is net credit spread.
Will it increase our account balance by 30k? 35+30 = 65k,
or the entire 65k (margin 44k and 21k cost of option buying) is blocked till end of trade until we exit from the trade or till expiry (and as per whatever P/L)
Yes, when you sell you receive the margins. Hence I mentioned that the sell option kind of finances your buy position. Overall basis, you’ll need margin for sell, a part of you buy is covered by the premium received.
The benefit of receiving the premium is instant, you need not have to wait. However, if you want to withdraw, you will have to wait for T+1. Also, there is no M2M in options.
How to execute 4 entries simultaneously
Ah, sorry, by simultaneously I mean one after the other in quick succession. However, simultaneously should be possible soon on Kite.
Sir i’m also new in options trading n i’m trying to understand please correct me if im wrong.
At any ATM we can
1. Buy put of 400 points down.
2. Sell the put of 200 points down.
3. Sell the call of 100 points up.
4. Buy the call of 300 points up.
Can it be applicable all the time. At any ATM.
Ram, this will result in a non-symetrical payoff, which may be tough to manage. Can you please put these values on Sensibull strategy builder and visualize the payoff?
From where I can apply options strategies in Zerodha? Do I need to subscribe Sensibull for option workout option stratagies?
In Iron condor what if we sell call and put after 3:15 pm and buy the call and put for intraday. Because buy rates reduced for next day.
No not necessary. You can execute these trades directly. I’m not sure if I understand your logic for intraday. Maybe you can give a bit more context. Thanks.
In iron condor strategy if suppose market goes in up direction so can i square off 2 legs that is sell call and buy put to get the benefit of upward direction
Yes, but that will just expose you to directional risk. Not sure if you are ok with that.
Hi Karthik,
Is there any change in the margin requirement of currency futures as per the new circular. I saw one slide in the presentation shared which talks about currency derivatives, and there it is mentioned ELM is proposed ‘to be halved’.
Its across all products, as long as your position is hedged.
hi karthik.as a beginner in options i need to understand if i execute iron condor strategy and the strategy is profitable before expiry and there is ample time to expiry can i square off the positions and book profit before expiry.if yes how to square off the position as 4 legs in strategy 1) short call 2)short put 3)long call 4)long put.what should be the SEQUENCE to square off and EXIT.
Yes, Manish you can exit before the expiry. No need to wait to expiry. I’d suggest you exit by exiting the short call, long call, short put, long put sequence.
hi karthik. u gave the sequence of exiting before expiry as 1) short call 2) long call 3)short put 4) long put.if i m not mistaken during exiting before expiry for each leg i have to cover the position at current spot price.for eg.1) to cover short put i should buy put at current price 2)to cover long call i should sell call at current price ans so on for other two legs.
No need Manish, the assumption here is that you’d be exiting all these positions one after the other in quick succession. So there is no real need to cover and increase costs.
Hi Karthik – another great learning module. Thanks a ton for the hard work in explaining this as lucidly as ever to create hedged strategies.
At an overall level and perhaps this question sits in the option strategies module – are you planning to create more content on how to adjust option strategies as one progresses through the expiry? Perhaps on defending the premium when you are a writer or keeping options gamma and/ or delta-neutral ?
That’s an interesting thought, Rishabh. For something like an iron condor (or butterfly, which I’ve not explained), there is no real need to adjust as these are hedged positions. What needs adjustment is a delta neutral position such as a short strangle and straddle. Need to spend some thought on this and maybe I’ll put up something.
Hi
How filter low volatile or neutral stocks for iron condor strategy?
Pls give IV range for low volatile stock.
Not sure if I get your question completely, but the strategy is independent of stock volatility.
Dear Karthik,
Thanks again for this tutorial. I have one question for iron condor its very important to select the correct OTM and correct slightly more far OTM. Could yo please help me to suggesting which parameter we should consider for choosing that. OI, max pain may be PCR. Will wait for your reply. Thanks again, have learned a lot from your blog. Have a great day.
Subhajit, I’d just go with 1-2 strikes away ATM for the inner legs and another strike away from the inner legs.
Respected Sir,
Long awaited strategy. Thanks a lot sir. I have gone through so many youtube videos and write up on this particular strategy (as it was not available here !!!). But, none of them have explained the underlying concept methodically. Most of the things are a kind of copy and paste. I had requested for this strategy writeup even when I was not knowing ABCD of strategies. After going through the strategies atleast for 3 times, I have now started trading options in a small scale and am able to appriciate every word of this classic write up sir. I am now in a position to understand why you have been emphasising so much about the option greeks. It was a long journey from March 23rd till today, I have covered all the modules as if I have got admission to stock market college. Thanks again for giving such a invaluable stuff free of cost.
Warm Regards.
Thanks for the very kind words and I really appreciate your patience to read through all of it. I hope you continue to learn and I hope you remain profitable! Good luck.
karthik sir i have seen one iron condor strategy in stargtegy wizard where there is no break even at expiry and delta is zero then there is no chance of max loss at expiry here is strategy buy put 20400 sell put 20500 sell call 21500 and buy call 21600 when banknifty is at 21592 , is it possible that delta is zero and there is no loss wherever is market go i m very much confused please help
I’m not sure about that, Sunil. In an iron condor risk is contained, but the loss does occur if it moves in either of the directions.
Hello Karthik,
Implied volatility should decline post-execution of an iron condor?
Anil, you’d want both the market and the IV to stay in a range for the best case possibility. Btw, volatility is kind of hedged in an iron condor.
Hello Sir… I am a beginner in options trading . And i have 2 questions
PLEASE REPLY .
1 QUESTION. Suppose i implement Iron condor strategy on nifty . (Spot price – 9800) . Short CE of 10,000 (OTM) and also short PE of 9600 (OTM) and again protects them by buying ( Otm PE ) AND ( OTM CE ). NOW SUPPOSE CE OF 10000 Have premium of 40 rs and premium given by Pe of 9600 is 60 rs. CAN I MAKE MONEY BY IMPLEMENTING THIS STRATEGY FOR ONE DAY . Suppose i implement this strategy on Monday at 9.20 AM and exit at 2.30 PM. Will i make money ?
2 .QUESTION Can i use this strategy on stocks also ? …….Please reply…….
1) I doubt it since these multi-leg strategies are best held to expiry.
2) Yes, you can do this on stocks, index or even CDS.
Thanks, Karthik!!
To get the best possible risk/reward, what if the range of stock/index is their support and resistance.
a.) My range is wide. so my losses will be minimized.
b.) Deep OTM options so the probability to get convert into ITM is far less. (low delta).
Yes, you can mix elements of TA and develop a strategy.
1) Yes
2) Agree
hi karthik.i have few queries.
1)how probability of profit(POP) calculated?
2)when strategy is created what is minimum range of POP that should be looked for?
3)How is POP related to maximum profit/maximum loss?
1) One way to measure POP is to consider the delta of an individual strike or overall position. If the delta is 0.45, then the POP is 45%
2) Higher the better, but this may not always be the right way to set up a trade.
3) POP is one aspect, it has no relevance to INR value of P&L
Thanks for sharing this excel calculator. It’s a boon for people like me. Can the same be used across Stock Options and Index? Do we need to make some changes in it?
Yes, you can use it on stocks as well. I think the template should work. Try replacing the premium values, please.
Hi Karthik
Thanks for sharing good knowledges. Just wanted to ask you;
i) the options sold are to be closed to ATMs, shall we have to see the position delta or vega? Or just go for shorting the just OTM options. The spread of 200 between the sold & bought options is ok.
ii) when we should we exit in case a trend is formed and seems to violate the boundaries(BEP range), or just wait for the expiry for the capped loss.
1) Yes, stick to OTMs, it accounts for all greeks.
2) This depends on what you expect from the market. If the premiums have moved in your favour and you are profitable, then you can exit the position anytime you wish. No need to wait till expiry.
Hello sir,
In one of your response about selecting OTM and slightly far OTM strike, you wrote “Subhajit, I’d just go with 1-2 strikes away ATM for the inner legs and another strike away from the inner legs.”
Could you put this in an example by giving strikes for all 4 positions of iron condor and clarifying which part is called inner leg in your quoted response above?
The inner legs are the ones which you sell…i.e. both the CE and PE. The outlets are the 2 long positions. The example is in the chapter itself, Rohit 🙂
thanks Karthik. The excel calculator is awesome. Great work in helping out.
Happy learning 🙂
Hi Sir,
I see Nifty max pain is 10000 for Jun month. Under which scenario it will break this support in this month? You indicated about black swan events. As per your experience what was the trigger caused max pain value?
That support can be taken away by day to day movement itself, we don’t really need a black swan for this.
I mean under which all scenario market cross the max pain value?
Like I mentioned, the difference is not much. 10K can easily get knocked off 🙂
Thank you for your response, sir. I did go through the example. I was confused about relating the legs part with strikes☺️
Cool. Happy learning 🙂
Hi Karthik,
1. In Iron Condor, we buy OTM put and call options for restricting loss on both sides.
2. If I construct Short strangle and place 2 GTT stop loss orders on each side of strangle leg, i should able to save on buying premium cost . My profits will be same – premium received from selling option.
If market moves to one side , stop loss will triger for that leg , protecting my position.
Only my margin requirement will be higher.
Is this understanding correct?
1) True
2) Yes, you can. This is not comparable to an iron condor though.
Talking about happy learning, i do have one more thing to learn, sir.
In the entire module, whenever you discussed a strategy, you came up with precise strikes(ATM or OTM or ITM) to enter the market for multi legged ones.
Did you decide on these by trial and error method or are these strikes universal in nature and professional traders use the combination of these strikes ONLY be it condor, bull call spread etc?
Please enlighten.
I’ve explained the thought process in the chapters itself, Rohit. If you want to stick to safety, I’d suggest you look at ATM or slightly ITM option.
Hi Kartik,
How to rectify the iron condor if the NET spread is negative after entering all the legs?
How to execute the strategy correctly to ensure there is always a positive credit spread after entering all legs.
TIA,
It cannot go -ve as you are selling strikes which are always at a higher premium compared to what you are writing.
Thank you, sir.
One last query as did not want to wear you down with a prolonged one at once.
Two options were described in theory module which were european/american. When i look into zerodha kite, it shows call and put as CE and PE which is european system. That means it can be squared off on the expiry day only. The strategies module says we can square off any day before expiry if we meet our profit targets. Please clarify?
Rohit,CE or PE implies that you can exercise the option on the day of the expiry only. However, you can buy-sell the option by trading the premium. Trading the option premium and exercising the option are two different things.
What does held till expiry mean?
If I set up an iron Condor today, should I just wait out till jul 30th Thursday closing bell?
Will the system square me off ?
You can decide to hold till expiry or you can decide to square off before the expiry. No issues with that.
sir,
i bought nifty call option strike price @11000. Before expiry if nifty goes to 11100, and i square off my postion ,then will i get profit of Rs 100 on my call option. ?
Yes, you will.
sir, i need little more clarity since i am setting this up first time
for eg: If i sell a nifty 11200 CE for a premium of 20 rupees. ie value = 20*75 = 1500 rupees
and the nifty closes on 10800 on jul 30th 3.30 pm
Do i get to keep the 1500 rupees if i do no nothing on the 30th ?
Or do i have to manually buy back the 11200 CE at market price @ 3.29 pm (i.e square off my sell transaction with a buy transaction to complete the trade)
That’s right if Nifty closes below 10800, then the 11200 CE would expire worthlessly, hence you get to retain the entire premium i.e 1500/-. However, it is always better to close the trade before expiry to avoid paying STT for ITM options.
iron Condor
if market close at 9000 or 11000
max loss??
The excel template will give you the answers 🙂
iron Condor
if market close at 9000 or 11000
max loss??
This makes an iron condor a four-leg option strategy. Let us see how this looks –
Part 1 – Sell 9800 PE at 165.25 and sell a 10100CE at 145.25, collect a premium of 310.5 or Rs.23,288/-.
Part 2 – Buy 10300 CE at 77 to protect the short 10100 CE
Part 3 – Buy 9600 PE at 105.05 to protect the short 9800 PE
iron Condor
if market close at 9000 or 11000
max loss??
Please use the excel sheet to check the payoff at individual price levels.
Hi Sir,
Butterfly startegy was listed at the start of the module ,but could not see any explanation, are you planning to add soon , also saw that iron condor was recently added, the old pdf that i downloaded did not have even iron condor, any specific reason not to go in deep discussion with Iron condor and butterflies, please do reply
Thanks
Guru
Its just that the margins were prohibitive for executing these 4 leg strategies, but with the new framework this is now easily possible. Hence added it now.
Sir,
Just a follow up on my previous question, i see 2 other strategies which you said will be discussed at the start of the modiule, Strips and straps, please do add them when ever you find time, I would like to thank you for this education , I have learnt many things through varsity
I will try and add these as well 🙂
How my P&L will look like if I exit iron contour before expiry? What I will get and what will be the loss?
You can use the strategy builder on Sebsibull for this.
Thank you for your response sir.
I am a swing trader in index futures and trying to learn options. I have another mundane query, if i am trading premium what is the process of squaring it off on kite? Alternatively, if i am supposed to exercise an option at the time of expiry, how does this process differs at the time of execution on kite?
Goto the positions tab, click on exit position and you are done. Exercise an option is simple, you let your position stay in the system without squaring off. If you do so, its deemed exercised.
But zerodja not allowing buying OTM options to place iron condors
You can on monthly Index and stock options, Ravi.
Perfect!
Thank you so much for responding to all my queries without cringing. Appreciate it, sir.
I have read both theory and strategy modules now and i loved the cartoons to describe a peculiar situation. They were witty. Also, admire your ability to interwoven your favorite Terentino and Moneyball with options! Learning an art and sharing it with others through teaching is a different ball game together. Zerodha picked up the best guy for this job. Cheers!
Thanks for the kind words, Rohit. Hope you continue to enjoy other modules as well!
How should I consider Implied Volatility while trading options ?
Like , on what day or what time while trading Nifty options..
Yes, IV is a critical input for options trading. You should look at it. Have highlighted the importance across several chapters.
This chapter is not available in Hindi language
Noted.
I tried executing this strategy but could not do it due to OI restrictions.
Fortunately, it was the very first trade of buying OTM put which gave this error and then I stopped the entire trade altogether.
However, this made me wonder what if I would have got the OI error after 2 orders were executed.
Total mess and instead of safe limited risk trade, it would turn into a nightmare.
The risk of all four legs *not* being completed seems to be too high. What if only 1,2 or 3 legs get executed and then OI restrictions kick in? I will be stuck with bad trade with high loss probability.
One way to make this a viable strategy as claimed in the article is to display the OI restriction before placing the trade.
The Buy/Sell interface can have a button which displays if this strike is within known OI restriction.
You do have a point. However, you can check which strikes are allowed and which are not before setting up the trade. Check this – https://zerodha.com/margin-calculator/SPAN/
Hello kartik,
Regarding option, would please explain about how profit & loss are calculated before expiry & on the day of expiry? Also on the day of expiry can we square off the position before 3.30 pm or system will do it automatically on expiry day at 3.30 pm.
Regards,
Amol.
Before the expiry, the P&L is simply the difference between the buy and sell price of the option premium. After the expiry, the P&L is dependent on the intrinsic value of the option.
For CE, the intrinsic value is the positive difference between the spot and strike and for PE, it is the difference between the strike and spot. I’ve have explained this in detail in the previous module.
Hello sir,
In regards to Trupti’s query above, what are OI restrictions error? Additionally, the link given for strikes allowed for trading is showing the upper range for next week nifty as 11400. However, when i go to kite and search for 11500 ce strike, it is shown for 23 July expiry? Does it mean i will not be able to trade for 11500 ce since the range mentioned is 11400? How does this work. I did see why zerodha have a limited range for OTM strike as 15 percent thing kicks in. Please clarify, sir.
Do check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/articles/why-did-my-bank-nifty-option-order-get-rejected
These restrictions are usually on the weekly options, not monthly.
Karthik,
This is my understanding, please correct me if i am wrong
Options trading works best
1. if the underlying stays in a range (so that we can deploy a condor and lock-in profits)
2. we are already in a position and needs hedging or day trading (say we already have 100 qty of stock, but we feel a news may take the stock 5% down. and we dont want to exit the stock – but reap some profit in the meantime 🙂 )
If we are clear on the direction or the main trend, i guess futures trading gives higher return than options trading.
1) Yes, for iron condor to work, you want the stock/index to stay in a range
2) Yes, usually ATM PUT works best for such scenario
Yes, futures is best when you are clear about the direction.
Thank you for your guidance.
On day of expiry.. What time one should square off the positions?
For example on expiry I want to square off 11000CE short and Nifty is trading around 11050 with premium 150. As per analysis Nifty will close around 11080 on expiry day . In such case if I don’t square off 11000 CE what will happen?
It is better to square off the position before 3:20PM on the expiry day and avoid the hassle of getting the contract assigned.
Hello Kartik,
where do i get OTM strike range for nifty & banknifty for weekly expiry?
You can look at it from the options chain window, available in Kite market watch. Check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/articles/kite-option-chain
Hi Karthik,
I tried to calculate Margin requirements for Iron Condor Strategy on Zerodha’s Margin Calculator, step by step as mentioned in this chapter, on Grasim July 30 CE Options but the margins were still pretty High, i.e., 2,30,000 Rupees. The major component is Exposure Margin – 2,12,000.
Why is the margin requirement still so high?
Thanks
Are you sure? Please double check the expiries and buy sell attributes again.
Hi sir,
I was going through your comments about Greeks on above strategy. You said volatility is taken care of in iron condor itself. Something like this for delta also.
My query is, when i place iron condor which is 4 legs strategy, is this strategy greeks independent? If this term exists. Alternatively, if greeks matter in condor, which ones to look out for and how does it work? I mean what should be the iv and delta etc at the time of entry/exit?
Thank you for your time.
Iron condor insulates against direction (delta) and volatility (vega), so what you really need to look for is time. However, the same cannot be said about other 2 and 3 leg strategies.
hello kartik,
where can see restrictions on certain OTM strikes as far as nifty & bank nifty is considered with respect to weekly expiry.
Check this – https://zerodha.com/margin-calculator/SPAN/
Hello kartik,
i had sold nifty 11200 CE at 17 rupees on 22.7.20(non-expiry day) and if buy the same on 23.07.20 (expiry day) when nifty is hovering below 11200(it was around 11186) at 11.00 am then will i able to keep 17 rupees premium OR should i wait by 3.20 pm?
It depends on what price you are buying back the option. Suppose you buy back at 15, then your profit is 2. Or suppose you buy back at 2, your profit is 15.
Hi sir,
W.r.t Amol’s query above, don’t we get the maximum profit when we let the Sold options expire worthless.? This is in context to Candor. So, if the underlying remains within the OTM strike range we chose for Candor, we get maximum profit at the time of expiry as we get to keep the entire premium. In Amol case, if we buy back before, it will depend on the premium traded at that moment of time as mentioned in your response? Please clarify if i am on the wrong train of thought?
Regards
That’s true Rohit. Not just with Iron Condor, applies to all multileg option strategies 🙂
hi kartik sir,
1.The new margin rules brought by sebi is little confusing. When SEBI is talking about no margin for fno from Aug, how will this impact Discount brokers who offer huge leverages to entice retail traders?
2. With the end of margin facility does that mean we will have to pay 122k (as per zerodha margin calculator) to initiate a position in bank nifty futures for an intraday trade (buy or sell) against a fraction of amount that I’m paying right now for MIS? Or is it only for option sellers?
3. If this rule is in force from 2021 as sebi says, I’m sure many of the traders with capital base of 1-1.5lacs will have to leave the market as it is impossible to sustain with such a small amt in long run.
4. Do You think there will be a drastic reduction in trading volumes?
5.IT looks like SEBI wants to stop retail traders from selling options and they want to drive the traders into buying.
1) There is leverage, but no additional leverage. Do read this – https://tradingqna.com/t/no-additional-intraday-leverages-from-aug-2021-in-indian-capital-markets/84561
2) There is no change to F&O, it will continue the same way. This is for equity intraday
3) Like I mentioned life changes for equity intraday
4) To some extent in my opinion but this won’t be too drastic
5) I don’t think they have any such agenda 🙂
Good Morning. At the very start of this chapter, you have written that “Starting 1st June 2020, NSE’s new margin framework is live, which essentially brings down the margin requirement for the hedged position.” Could you send me the link for whichever NSE Circular this pertains to, please?
Check this – https://drive.google.com/file/d/1CLeaZQIOiYJD40edLyAqiqxnISnE68yV/view
Hello kartik,
With reference to my query dated on 23.7.20, if I buy back sold option on expiry day on anytime between trading hours (9.15am to 3.20 pm)then would I able to keep entire premium provided that it is below strike price OR will we have to wait till expiry time.
No, you will get to keep the amount which is the difference between the buy and sell price of the premium.
Hello Karthik,
suppose bank nifty spot price is 22600
and i shorted 23000 call option and 22400 put option
and suppose I am getting 4000 profit if spot price come down to 22400 or it move to 23000
So can I square off my position in between or i have to wait till the expiry because I have shorted the position.
please give my brief because i have never shorted call option.
And also what amount of margin is prohibited for traders.
Yes, you can square off the position the same time, no need to wait to expiry.
Ok And Is there any Limit for Margin i.e. like 1.45L above that margin you cannot trade.
No, there is no such restrictions.
Hello sir,
I am back with another query 😔
I was going through the example above and the excel for the payoff attached in iron condor module.
In both the scenarios, the max profit was greater than the max loss. However, is this the case always or it changes with the selection of strikes?
I checked the profit and loss ratio by selecting far otm strikes within zerodha oi range and the max loss was greater than max profit?
Please clarify.
Rohit, usually this is the case i.e. if you choose slightly OTM to write and far OTM to buy. But then this can change based on the premium and the market circumstances.
Hi karthik,
Few questions.
1. What type of stocks are more suitable for this strategy?
2. Any formula to determine the range to stay profitable? Either % or stdev, anything.
3. When should the trade be executed, beginning of month, mid or later?
Seeking guidance on stock and range selection, I did iron condor for Pnb in jul and the margin requirements shot up dramatically week over week, almost 10 times of original margin. I had to exit before expiry.
Great series. Thank you.
1) Any stock which is liquid
2) Nothing specific that I can think of
3) Around mid if good enough
Did you have other positions apart from the Iron Condor?
For Point# 2 – How far OTM should be considered for iron condor? Too close is risky and too far is not liquid. Is stdev 1 a good enough distance considering we are at mid way for expiry. Or should I go by max OI positions on both sides? How do you choose the strike prices for this strategy?
Yes Karthik, Now I realise that I had squared off the CE side before PE side considering the movement in the stock.
Usually, 1 or 2 strikes away from what you’ve written should be good enough.
Sir i have two questions
1. Do theta decay happens during the market ?
2. what will be the impact of carrying positions over weekend ?
1) Yes, it is on a continuous basis. However, the effect of it is largely felt closer to expiry.
2) Only some theta effect, nothing apart from that from the Greeks perspective.
Hii Karthik,
I was trying Iron condor on stocks and I observed that the Net premium received is less than the max loss. But same I tried with Nifty index it is reversed, premium received is more than max loss.Why it is so?
Pls elaborate this..
2).Another query suppose I make Iron condor yesterday with Nifty spot price 11095 (Sold 11300CE and 10900PE, Bought 11500CE and 10700PE). Net premium received 120 and Max.loss 80.
If I want to exit in 2-3 days then how much premium would I able to make considering the index in range.
But why are you comparing a max loss with net premium received? What you need to look at is the potential max loss versus the potential max profit at expiry. It is hard to estimate the P&L before expiry as it involves multiple assumptions. However, you can log into Sensibull platform to check this.
sir,
I have been working on these hedged positions for a while and today morning when i thought of doing a earnings trade for tomorrows results of amarajabat share it happens to go like this, amarajabat spot =720
720ce buy premium =28*2 lots (leg 1)
740ce sell premium =21*3 lots (leg 2)
780ce buy premium =10 one lot (leg 3)
now ,i was able to figure out the max profit that is on expiry if spot ends up near 740 and it happen to be 37,600 and does matter how low the share price goes the max loss is limited to 3000, now im struck calculating the loss if share price goes beyond 780 (eg: if spot goes up to 900) so please help me solve this .
thank you very much.
Koushik, this is not an Iron condor. Uneven strikes and the uneven ratio of lots. What was the reasoning?
yes sir ,this is not an iron condor .I just need help in calculating the risk if share price rallies up and my reason is to collect premiums before the results were volatility is high and at same time hedge the position so that we come out with minimum loss if share price moves violently .
thank you .
The best way to deal with this is to put the numbers on excel and measure the pay off from each strike against hypothetical market expiries. This will help you understand the risk and reward. In fact, I’ve done the same thing on every strategy chapter.
sir ,
And it turns to 3000 max loss either side (from 722 down side and from 777 up side ) am i correct sir ?
Possible, cannot comment on this unless you put the numbers on excel or actually you can do this on Sensibull strategy wizard as well.
thank you sir got it
Cheers!
Hi Karthik sir , I am a big fan of Zerodha varsity as whatever trading knowledge I have today is coz of Virsity, Thank you for everything sir:)
I am trying to learn Iron fly strategy as well, when it is going to get added on virsity , I am searching for “what should be the ideal IV percentile” to initiate iron fly, Please provide your guidance on this sir …
Thanks…
Ah, I’m not sure about the Iron fly myself, have never traded that. Will have to research myself 🙂
Hi
I get that when iron Condor is implemented the margins reduce by a great margin.
How will the margins for Iron Condor behave in the last two days of expiry? Will the margins double for iron Condor as well?
The margins will go up slightly, but still less compared to overall margins for naked positions.
Hi kindly clarify this strategy would be good for monthly or weekly.
Yup, you can use this for both expiries.
Thanks….If in any neutral strategy like Short strangle or Iron condor, If at any point of time the market strongly moves out of our profit range should we still hold the position till expiry or come out with a loss before expiry or do you advice us to make any other adjustments as per our skills..?
Yes, this depends on your holding capacity and risk tolerance. Please close the position of you think its outside this boundary.
If I take a BWB (Broken Wing Butterfly ) position of 27th August Expiry of Reliance with no downside risk as mentioned below:
Buy 2160 PE
Sell 2180 PE and 2180 CE
Buy 2360 CE
Net Credit – 25477
Capital – 2.17 Lac
Downside sure shot profit – 15377
BEP – 2230
My query: Is it necessary to close & exit the positions before expiry or can I let the whole basket expire. will I get assigned as my PE sell position will go In The Money(ITM).
You can carry the position forward, there is no issue with that. All ITM will get assigned though.
Sir please add the chapter for strategy adjustment.
Sure, will look into that.
Hii Karthik,
Thanks for your valuable insights on Iron Condor.
I have a few questions here.
Lets say I need a total margin of Rs. 100000(SPAN + exposure) to write one lot of Banknifty option and I have Rs. 100000 in cash, and then I take the position (NRML).
I did Virtual trading on Friday in Bank Nifty(Spot-22150) as per details mentioned below…
Sell CE22500@320, Sell PE21900@352, Buy CE22700@248 & Buy PE21700@147.
Now suddenly bears took the grip and Banknifty breaks my breakeven(21753). But I still feels that it will bounce back and will be within my range so I decided to carry forward the position to next week.
I have 2 questions here….
1) Does the broker automatically square off my position Since it breaks my breakeven strike point and closed below it?
2). Does the broker ask me for more margin requirements ? If yes, then how much?
Pls elaborate in details as it is practical case .
1) No, as long as there are margins available. Also since this is a hedged position, your margin requirements are low
2) Unlikely since its a hedged position. But if he does, then you will be notified by the broker.
So you mean to say my position will not be squared off even though I have reached my maximum loss. Closing price was 150 rs below my lower breakeven. Does It means price can go anywhere beyond my range but it will not be squared off by broker.
The broker won’t bother about the range, they will look at it purely from a risk perspective. Risk versus the margins covered.
hey karthik,
while trading iron condor like Buy 20800put, sell 20200 put and sell call 22000, buy 22400 call will it require different margin for sell call and sell put or it will require single amount margin of 34000. because in sensibull it shows total fund require only 34000 but while trading it shows insufficent margin.
The margins are combined. You will have to ensure the buy position is in place before you do the sell positions.
Hi Karthik,
Thanks for the wonderful explanation. In the above example, the margin required for Iron Condor is 44,303 and for short strangle is 1,45,090. What if I enter the Iron condor position but later exit both my buy positions? Will my sell positions be squared off immediately ?
The margin requirement will go up.
Hii Karthik,
Could you please share us the excel for P&L calculation for Iron condor strategy if someone wants to exit before expiry.
Its there in the chapter itself. Search for the word ‘Download’.
Hello sir,
Is there any other strategy in options other than iron condor which has almost negligible Greeks impact, is price direction neutral?
Regards
Rohit
Iron Butterfly is another strategy that you may want to consider.
Sir, can I put a stop loss in a options short positional trade(over night)?
Yes, you can use GTT for this.
Hii Karthik,
I have using the excel shared by you but it is calculating P&L considering expiry day.
How can
Why don’t you play around with the values?
Hii Karthik,
I have using the excel shared by you but it is calculating P&L considering expiry day.
How can we calculate P&L if I want to exit Iron condor position well before expiry since it carries time value also.
Should we consider the drop in Premium value of both the short strike of PE and CE for Profit.?
Kindly guide.
Ah, the excel is based on the assumption that the option is held to expiry. I’d suggest you use Sensibull’s strategy wizard for visualizing the P&L before expiry.
Thank you for your response, sir.
I read about iron butterfly on investopidia. I could not differentiate between condor and butterfly as it seemed similar. Is there any intricate difference i am missing between these two?
Regards
Rohit
From the max profit perspective, in an IC, you expect the underlying to stay in a range, in IB you expect the underlying to stay at a single point.
HI i want to know how to exit a iron condor. should be first close the inside positions or? how..Exit part is as crucial as execution right.Please share some light on on it for me.
Yes, first remove the inner legs (the short one) and then the buy.
The NSE new margin framework is indeed a real gamechanger for someone who wants to earn a monthly income trading Iron Condors.
The losses are limited, no matter what!
You bet, this is a big improvement and a boon to traders with hedged strategies.
Hi, Iron Condor is the good strategy to use either on market direction. I have one doubt as it was already discussed in the forum on July 9.
Q: How to rectify the iron condor if the NET spread is negative after entering all the legs?
Ur Ans :It cannot go -ve as you are selling strikes which are always at a higher premium compared to what you are writing.
But i just did paper work using this strategy and seen the NET spread is negative after entering all the legs?
Is there any other way to rectify it?
Thanks
Can you share the IC details?
#BIG_FAN_FACING_ISSUE
Hello Karthik Sir,
I am a big fan of yours and the way you present the contents in Varsity. Thanks for all your efforts.
By the way, I am facing an issue as below;
On 31st of July approximately, I completed “Option Strategies” certification from Varsity mobile app. Today for the very first time app asked me to re-login using multiple options (Google account, Kite etc.). I tried using both of them, but I am unable to see this certificate alone in the progress section.
I had also completed 4 other certs. all of them are visible. But this alone is not (Option Strategies).
Can you please help me, as I don’t want to lose my achievement ??????????????
Thanks in advance.
There is no facility to attach the certification image to this post; else I would have done that.
Also in the certificate Issued on Date was not visible. I perfectly remember I had answered 13/15 questions correctly but still the score was shown in correctly as 97.5/150.
Not sure how to get this corrected. Please help !!!
Hi, As requested, here is the IC details for Axis bank which taken on Tuesday.
Spot Price 450
CE Strike, Sell 470
PE Strike, Sell 430
CE Strike, Buy 480
PE Strike, Buy 420
CE Premium received for short 18.45
PE Premium received for short 10.55
CE Premium paid for Long 14.45
PE Premium paid for Long 7.8
Net Premium (Credit) 6.75
How to rectify the iron condor if the NET spread is negative after entering all the legs?
Thanks
The point is that you wont get a -ve spread. Think about it, you are always writing a valuable option and selling something which is less valuable, so it will result in a +ve cash spread.
Karthik Sir,
Can you please reply to my comment/query as well ?
Please do the needful.
Sorry, I seem to have missed it. Can you please re-post the query again?
Hi Vijay, can you please confirm the email ID you used to login Varsity for the first time? We are having this checked.
With Iron Condor, as margin is getting reduced almost one-third (1/3) – We can increase the lot size to match that with Short Strangle?
Also, is there any specific strategy when lets say TCS goes up by more than 7-10 % in short span (may be a week) –
The premiums for the OTM CEs would also increase. And if our view is that it is already run-up, it will not run more…its safer to short OTM CE (lets say 7% more from the strike price).
Do we have any hedged strategy for this situation?
You can increase the premium provided the capital permits you to do that. Yes, you can short OTM options if you think the stock has had its run.
Sir,How to do with option hedging with cash market and future market.Please explain how to do option hedging.
This very strategy is a hedged one right?
#BIG_FAN_FACING_ISSUE
Hello Karthik Sir,
I am a big fan of yours and the way you present the contents in Varsity. Thanks for all your efforts.
By the way, I am facing an issue as below;
On 31st of July approximately, I completed “Option Strategies” certification from Varsity mobile app. Today for the very first time app asked me to re-login using multiple options (Google account, Kite etc.). I tried using both of them, but I am unable to see this certificate alone in the progress section.
I had also completed 4 other certs. all of them are visible. But this alone is not (Option Strategies).
Can you please help me, as I don’t want to lose my achievement ??????????????
Thanks in advance.
Thanks, Vijay. Will get back to you on this.
Hi Karthik,
Very nicely explained. Can this be applied for an individual stock as well? in that case also the spread of Put and call buying (to safeguard) has to be same like for Nifety?
Or this is only for Nifty spread?
Also when we cancel the trades near the expiry, will the margin increase as we reduce one by one in case of a stock?
Yes, you can apply this to stocks as well.
Its same as the one I have shared in this comment. Its;
[email protected]
Karthik sir, First of all i’d like to congratulate you for the time and efforts that you have put in creating this forum..Every portion has been explained very meticulously. If you could suggest any examples on adjustments with Iron Condor it would be really great. Thank you
Thanks for the kind words, glad you liked the content 🙂
There are no adjustments really to the IC, since this is a completely hedged strategy.
sir , i tried to implement iron condor using basket order and my capital is extent to the margin benefit only. The sell orders got rejected and only buy orders got executed.
why the sell orders got rejected?
do i need full margin to get margin benefit?
Kumar, like I’ve described in the chapter, you need to ensure you have the buy orders in place before selling. This will get you the margin benefits.
Can you please suggest any real time trading website(simulator)for educational purpose.
Maybe you should try this – https://papertrade.sensibull.com/login?redirect=%2F
Team,
Despite my multiple messages on this portal, my issue is still not resolved. My Option Strategies certificate is still not visible, on Varsity mobile application.
I had passed it in the first attempt and certificate was also visible for few days. But after the last login, it got disappeared from the progress section. In the meanwhile I again gave the certification exam. But despite of showing me my certificate, it still shows;
1. “No internet connection. You can still continue reading.”
2. When I click on “Show Answers”, it again shows the message from point-1.
3. Under the point earned section, it shows ” /150″. Not showing any marks.
I am really disappointed as my certificate, which I had earned after lots of efforts, is lost from Varsity.
My Email Id for Contact: [email protected]
Please resolve at the earliest.
Sharing it with the team, Vijay.
Hi Vijay, we have fixed this issue, can you please logout and login with this mentioned email ID again. All your certificates should reflect now. If the issue persists please write to us here again. Thanks 🙂
PL. COMMUNICAE THE POSSIBLE ADJESTMENTS TO BE MADE IF TRADE STARTS MAKING LOSS
@N.N. MENKUDALE
Iron condor is not delta neutral strategy, so delta or gamma hedging won’t do any good. however, if you look at the structure of the strategy, essentially it is nothing but two vertical spreads combined together. (bull put and bear call spread combined together). if the underlying starts trending, say it starts to decline sharply, what you can do is exit bull put spread leg which is the ATM/OTM Put sold and OTM Put bought, with that you have a bear call spread still open. so taking a small loss from exiting the bull spread goes a long way, making the delta negative. (opposite is true for bullish move in underlying). In another scenario, if you expect the volatility to increase significantly and expect a violent move in underlying, you can exit both short call and short put positions and take loss/small profit, now you are left with one long OTM call and one long OTM PUT which is a Long Strangle Position, a much smarter position given the high volatility forecast.
Mr. Karthik do comment if you have more methods to adjust an iron condor in mind.
This pretty much sums up everything related to adjustment of IC, thanks for pitching in 🙂
Hi Karthik Sir and Kulsum,
The issue still persist for me. I am still unable to see my “Option Strategies” certification.
Followed all your instructions, tried logging into Varsity using Google ID and Kite ID both, but in vain.
I am Zerodha customer, so you can even check using my Kite ID.
Contact : [email protected]
For more information, pls refer to the Comment # 163151 and earlier comments on this topic.
I have tweeted on the Varsity Tweeter handle as well about the issue with snapshots of my “Option Strategies” certificate issued and other error details.
” HOPING TO GET IT RESOVLED SOONER “
Hi Vijay, we were able to find your certificates with no issue. To inspect this further can you please share the screenshots of:
1. Progress screen (Profile -> Progress)
2. Certificate screen (Horizontal scroll and screenshots of all the certificates)
3. Certificate Quiz screen of Option Strategies module (Modules -> Option Strategy -> Certificate -> Quiz Screen
4. Profile Screen (Profile tab)
It would be more feasible if you would contact us at [email protected].
Sir I’m doing iron condor in nifty weekly my problem is premiums are very low & risk is more then reward
When to trade the iron condor in weekly for getting more premiums?
Thats right, Manoj. The best bet is to set up the IC early in the expiry. So set it up on Friday for next Thursday’s expiry.
Sir will these kind of multileg strategies give good RR in intraday or is it better to use multi leg strategies only for positional trades. And for intraday can we repalce ITM options for futures
These are best done on a positional basis. For intraday, I’d prefer naked directional trades.
Hi Karthik,
1) Is there any scenario in Iron-candor strategy where one needs to give/take delivery of a stock?
2) If I let all the 4 legs to expire on their own irrespective of the closing market price at expiry:
a) Max loss would be a) Diff b/w PE strike sold and bought minus net premium or b) Diff b/w CE strike sold and bought minus net
premium) as explained in your excel file – Yes or No ?
b) Would there be any give/take delivery liability at expiry ?
Thanks
1) I think there could be situations for physical delivery
2) YEs
3) Probably, depends on the situation.
Can you explain any one example where physical delivery can come ?
Also , is it possible to square off iron condor through reverse iron condor ?
Yes, reverse IC squares off IC.
If market shifted to any direction of iron condor range then how to manage or adjustment that trade.
Please check the comments, we have discussed it there.
Can we exit from long position early and have only short call till expiry?
Lets say for the sake of reducing margin, i have taken this strategy and now want to exit long position to continue with short only.
Is it possible in kite?
It is possible but your margin requirements go up once the long position is squared off.
Your margin requirements go up meaning?
I already have the short position with me.
Will it ask for more margin at the time of exiting long position? Please share if there is any article on this.
Yes, the system will ask you more margins as and when the position starts going against you.
Thanks Karthik.
Very nice article and prompt response 😊
I would like to understand if i am selling a OPTION/FUTURE of a stock and not buying it buy the time expiry. What would happen in this case.
EG: FOR RELIANCE stock i am shorting a PE @ 10 Rs. Considering the LOT size for RELIANCE OPTIONS is 505.
Now at the time of expiry the PE what i have bought is still OUT OF THE MONEY and has becoming 0 and finally as i have short the PE the total profile right now should be 505*10 = 5050. But as i have not squared off the the position what would be the scenario, i mean would that auto square off. Or is there any charges or penalty. Please clarify.
Thats ok, the option is OTM hence not an issue. The position will be squared off/settled by the broker/exchanges.
Hi, thanks for explaining this in very easy language. My question is how can we deploy iron condor strategy in zerodha kite. Is it doable without the help of Sensibull or any other platform or do we need to take paid subscription for deploying these strategies?
You can do this directly on Kite. In fact, we recently introduced basket orders which makes it easy for the implementation. Do check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/holdings/articles/kite-basket-orders
Thanks for the article.
The sold and protective strikes on both long and short sides, should have matching delta ?
Delta neutrality is not necessary for an IC.
chapter 14 not showing in the pdf download
Thank you sir this is very nice strategy.
Sir I am Zerodha Account holder and want to ask one question.
What is this strategy call sir.
e.g. Nifty tRADING at 11035
BUY ITM NIFTY 11000 CE – (-131)
BUY ITM NIFTY 11050 PUT – (-119)
Sell OTM NIFTY 11350 CALL – (+12)
Sell OTM NIFTY 10700 PUT – (+25)
I am thinking about this .. I do not know what this strategy called but it looks similar to opposite of IRON CONDOR.
This is like a reverse iron condor.
Sir what do u think it will work ?
Any strategy with the right risk measure 🙂
WHILE SQUARE OFF WHAT ARE THE STEPS TO BE FOLLOWED IN THIS FOUR LEG STRATEGY
Just initiate the opposite trade for each leg of the trade and it will square off.
Can you please let me the way to take Far OTM Iron Condor position “Outside the range of Allowed Strike Price Range”
For example today ( 28.09.2020) Banknifty allowed strike price range was 21300 to 22000 CE & PE for current week expiry. I could not execute the following Iron Condor.
Sell 21100PE Buy 20700PE
Sell 22300CE Buy 22600CE
Banknifty Iron Condor with 2 – 2.5% ROI per week can not be executed due to the above restrictions. Can you please throw some light on this.
Ah, this could be an issue. Do check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/articles/trade-all-strikes
I have not been able to take any Far OTM Iron Condor position in Nifty and Banknifty weekly expiry for last two weeks. This is pretty frustrating. With 200 point OTM Iron Condor in nifty, retails trader will never be able to make any profit.
If this restrictions are mandatory than why in sensibull SW( Strategy Wizard) we get to see Far OTM Iron Condor Smart Option Strategies when we give our “BETWEEN” view. These Strategies get rejected when we try take the trade. They should not come in to that list.
Can you please throw some light on this.
I have sitting on cash as I am a safe Iron Condor Trader.
Do check this Shyamal – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/articles/trade-all-strikes
Mistake. “I have been sitting on cash for last weeks as I am a safe Iron Condor Trader in Nifty.
I made good profit till September 1st week. But since last 2 weeks have not taken any trade.
Sir,
Can you kindly suggest the selling range and also buying range of OTMs from SPOT PRICE that are best suited for weekly options in NIFTY and BANK NIFTY to be traded in NEXT WEEK EXPIRY for trading an IRON CONDOR strategy
(2) And also a suitable OTM BUYING RANGE from SPOT PRICE to hedge OTMs that will be SOLD in WEEKLY OPTIONS for IRON CONDOR. This will help me in a great way as a beginner.
Thanks & Regards.
Weekly works the same way as monthly, all parameters remain the same..as in the strike selection. The payoff behaviour too is the same.
Sir,
Sorry. My request for point no.2 is for MONTHLYOTMs BUYING RANGE only. Please note
Thanks.
Noted, still works the same way as monthly.
Sir,
Can you kindly suggest the selling range and also buying range of OTMs from SPOT PRICE that are best suited for weekly options in NIFTY and BANK NIFTY to be traded in NEXT WEEK EXPIRY for trading an IRON CONDOR strategy
(2) And also a suitable OTM BUYING RANGE in Next Monthly Options expiryfrom SPOT PRICE to hedge OTMs that will be SOLD in WEEKLY OPTIONS for IRON CONDOR. This will help me in a great way as a beginner.
Thanks & Regards.
Have responded to your previous query.
Hi.
If I have to make a Rule Book/Algo for the following, is there any way Zerodha or Sensibul can assist.
Instrument : Nifty Option(Writing)
Expiry: Weekly
Stop Loss: Equal to Premium received
Profit(ROI): 1.75% on Margin
Strategy: Iron Codor( PE-400 point away from Spot) – 12 Point Premium
(CE – 300 point away from Spot) – 10 Point Premium
Adjustments: 1 Time roll up on the wining side.
Entry Day : Friday for next week expiry.
No, unfortunately, we don’t do this.
Hi Karthik,
Few days back , I tried iron condor on SBI stock but still have few queries as below :
CE buy at strike : 220 @4.1 premium
CE sell at strike : 200 @9.3
PE buy at strike : 160 @1.6
PE sell at strike : [email protected]
1) Delivery obligation at expiry would not be there between PE sell and CE sell levels ( 180 and 200 in this case) or between 165 and 215 (positive payoff) also , there is no delivery obligation?
2) Also what about the delivery obligation if last traded price is between lower protection and upper protection levels ( I.e between 171.8 and 208.2)
3) Do I have to change call spread also if price goes above 215 or only roll up put spread ?
4) In case of roll up put spread (incase price goes above 215) , do I have to close previous put spread ?
Thanks
1) Yes, as long as the ITM options offer each other, there wont be any delivery obligation
2) Evaluate the moneyness of the option and see which ones are ITM, all ITM options netting off against each other will result in no delivery
3) Roll up the put spread?
4) Not sure about the rolling up the put, can you elaborate on this, please?
How do GTT stop loss order mitigate Gap up Gap down risk?
Gap downs and up are sudden movements in prices which mostly occur at market openings, while GTT helps you get out of positions, it may not help you totally eliminate the effect of the gaps.
Thanks Karthik
1) Ok, let us take example . Suppose price at expiry for above condor is 165, then below would be the moneyness
– CE buy at 220 : ITM
– CE sell at 200 : OTM
– PE buy at 160 : ITM
– PE sell at 180 : ITM
Is this correct ? What would be the delivery obligation in this case ?
I’m assuming 165 as the Spot price. Since both are CE are OTM, there is nothing to worry. 160 PE and 180 PE are ITM, they would net off.
Thanks Karthik!
Can you please elaborate how come CE buy at 220 strike is OTM in this case?
Spot is 165, 220 CE will be OTM right?
Thanks Karthik!
Can you please elaborate How come PE 160 is ITM?
Because IV is -5 or zero (160-165)
IV cannot be -ve right?
Yes this is clear, as IV is -ive/zero
Just gone through moneyness chapter in Zerodha as below
We know the intrinsic value of put option can be calculated as = Strike – Spot
Intrinsic Value = 7500 – 8200
= – 700
Negative intrinsic value, therefore the option is OTM
As per the above logic PE @160 strike considering spot price=165 should be OTM ?
Lohit, the intrinsic value of an option cannot be negative. Its 0 or a positive number. So for Put option, Intrinsic value = Max[0, (strike-spot)] Do read the previous module.
=Max[0,(165-160)]
=Max [0,5]
=5 , hence ITM.
Thanks Karthik for clarifying
But in this case , PE 160 is strike and 165 is spot
= Max[0, (160-165)]
= 0
So, will it be ITM or OTM? Sorry am confused
It will be OTM.
Ok got it, so in that case below is the final scenario of the below case considering spot at 165
CE buy at strike : 220 – OTM
CE sell at strike : 200 – OTM
PE buy at strike : 160 – OTM
PE sell at strike : 180 – ITM
And hence there would be delivery obligation for PE 160 if I don’t square off.. correct?
And also, Karthik, in iron condor what you suggest – do one needs to square off all 4 legs even if only 1 leg is ITM?
Or else how the margin framework would change?
Thanks
Thats right. It is best if you can sq off all legs in 1 go. The single short leg will increase the margin requirements.
Ok thanks ; appreciate your prompt revert
Good luck!
Hello sir… Amazing article !
I have few queries here…
1.While placing basket orders can I follow the sequence of 2 buy orders followed by 2 sell orders against the one buy one sell followed by another buy and sell orders.
2.While exiting the iron condor , should I create a separate basket where I buy the two sell orders followed by selling the 2 buy orders?. Kindly confirm the same.
3.Sir does falling implied volatility/ India Vix play a role here for any of the position or all of the positions.
1) Its better if you match the buy with sell to reduce the margin obligation
2) No, you simply square off the positions, that will do
3) Not really for IC since the positions are kind of hedged.
i have a short strangle strategy in wipro and i wish to caputre the volitility that shot up due to the results , i am now not sure on the ce that i have short sell, what should i do here?
should i exit the profit pe side and increase it further or should i purchase an additional otm call ?
Like the way you initiated, you need to square off both the legs together. However, if you think the stock price will increase then maybe you should ride on the make PE short.
Hello sir, I am not able to clearly understand about square off the position without having a separate basket
1.So once I place an iron condor, should I go to the orders tab and buy back the two sell orders first followed by selling the 2 buy orders, once my target profit is reached, even if it’s before expiry.
2.So wat would happen if I create a separate basket for exiting the iron condor, if I place the buy back of sell orders followed by selling of 2 buy orders.
1) Square off the Short CE, long CE, Short PE, and long PE, in the same order
2) That also works, but you can do this easily by placing the orders directly
Hi,
How much net premium ( profit) one should target in any options strategy by keeping all transactions in mind? I am targeting Rs 15/- per lot.
What are your recommendations ?
Hard to generalise, depends on the strike and time to expiry.
Say with 14 days to expiry iron condor trade as below
CE Strike, Sell 11900 1 lot
PE Strike, Sell 11700 1 lot
CE Strike, Buy 12000 1 lot
PE Strike, Buy 11600 1 lot
1. If spot reaches my upper breakeven 11973, what are the firefighting ways I could look at to either minimize my loss or widen my range so that spot is within my range?
2. Also after making the iron condor trade, what are ways to maximize profit if your sure of directional movement long before expiry? Like can I average down my long position(s) by buying additional lots?
Thanks!
1) Frankly, with IC, there is very little scope to a firefight in a clean way, since the strategy is already loaded with option legs. The dirty way is to cut the lose making and make it a 2 leg spread.
2) Same as above 🙂
Does timing the Iron condor trade hold significance?
Thanks!
Sort of yes.
Dear Karthikji, good evening
I’ve two different set of queries
1) I take 5 lots of Nifty hedged trade each averaging about Rs 27-28k per lot for 150 strikes difference say for eg 12250 CE hedged buy & 12100CE sell near 1-2 days before expiry. But in RECENT 3-4 DAYS to my surprise the hedged margin increased!! That too even for 100 strikes difference say 12100 CE sell 12200CE buy averaging nearly Rs 30k per lot & again repeating for 100 strikes difference! Now this is hedged & after SEBI norms a low risk hedged should at least must not increase margin since risk is predefined. Still at zerodha day after day there’s increasing margin!
2) My 2nd query is about sometines OI restrictions in Zerodha. Whenever zerodha shows buy options Oi restrictions there’s violent move in market next day I saw esp on 31st Aug, one on 14th Aug expiry, one on 24th Sept crash & so on. In all these dates crashes there’s Oi restrictions day before & even on gap-up times too. PLS & PLS DON’T MIND ME Bt It’s as if some BIG PLAYERS are hatching CONSPIRACY against us retailers positions by taking COUNTER TRADE.
NOW U TAUGHT US SELLING OPTIONS 1 STD DEVIATION OR MORE AWAY as safety trade to success. BUT THE Oi RESTRICTIONS are HARDLY 100 pts away from SPOT & next day OPTIONS SELLING POSITION ARE ON LOSING SIDE EVEN ON EXPIRY DAYS!! Believe me when zerodha showed Oi restrictions on 23rd Sept I TOOK straddles OPTIONS BUY positions day before Sept expiry & I won handsomely by making near to 38k alone that day itself. Again today too there’s Oi restrictions u can see from 12000 to 11300 CE & PE. Why such stuffs happens on some days while on others day it’s normal?? Don’t you think Oi restrictions in Zerodha violate your principles of 1 std deviation or more when it comes to Options selling 🙁
1) Margins are a function of market volatility. Increase in volatility leads to an increase in margins. Btw, the increase to 30K from 28K is not much right?
2) There is no connection at all to this 🙂 Think about it, OI restriction means what? It means you can not take a trade for a particular strike no? how is this a conspiracy?
The 1SD can be applied to other stocks and Nifty.
Good morning Karthikji
28k happens to be on 150 strike difference & now that’s around 35k. Whilst 28k now is on 100 strike difference which before was 22k. Anyway thanx for your rply. 1st one as function of volatility I got.
Bt for 2nd one I ALWAYS PRACTICE HEDGING way before margin has came & STRICT POSITION SIZING WITH at LEAST 1 STD DEVIATION for risk management & I’m trying to sell bt couldn’t due to Oi restrictions for hedging. I’m very much ok with getting net premium of Rs 4 or 5 or 6 per lot of Nifty which you’d taught us translates to 1-1.5% RoI. Bt with Oi restrictions of far strike buy for hedging, I can’t take risk of selling options near to spot even if it is hedging or near to expiry.
Hopefully zerodha solves this 🙂
We will Harsh, do read the link I shared previously. It about the Orbis arrangement.
HEY KARTHIK IS LIVE DATA ANALYSIS JUNK???? CAN I TBE USED TO TRADE THE MARKETS
I’d just say that I’d prefer other techniques to trade 🙂
Pls add chapters on straps, strips butterfly etc
I would love to read and learn about them
Noted.
Whether iron condor will have margin requirement as per existing contract on last week of expiry for stock which have physical settlement? Or the whole contract margin will be charged for all the four leg in last week of expiry?
The margin increases a bit during the expiry week.
Hi Karthik, can you please write about the Butterfly strategy?
Sure, will try and add that as well.
Hi, Karthik
I got a strategy that i can make 5 to 7 percentage per month but the problem is the capital.I got very less capital. Do you know any funding program ,so that i can get enough capital to trade.
No 🙂
Ok thanks for replying
I made a mistake in my question instead of year i wrote month…my real question is, i can make 5 to 7 percentage profit yearly..any luck or funding program??
Not really, Albin. Btw, I’m just playing your devil’s advocate, 5-7% is what you get in SB/FD right? Why take the effort to trade?
Ok then tell me the returns of a avg trader or investor and thanks in advance
Unfortunately, there is no data around this.
Its just people don’t believe me when i say i can make 5% per month i thought you are just skipping my question that’s why i changed the question…i just want a funding program ,i will write their exams or papper trade and show them ,i am sorry if i hurt you ,i got lots of questions if you don’t like this question ignore this but please ans my future doubts i got lots of them
Albin, 5% per month is good and quite a tough thing to achieve. Its just that I don’t know of any funding program.
Thanks sir for the reply, seems like i have to fund my acct on my own
Yes, or the other option is to float a PMS.
Hi !!
When you build a Option Strategy in Sensibull, in the Summery, one gets to see a format with the following information:
Max Profit
Max Loss
Capital Required
Premium (Rec/Get)
Margin Required
Return and
Decay
After taking a position the amount that is shown in Margin Required is the amount one needs to have as available cash in his account. Am I correct?
For example: For a position, if I get to see the following
Capital Required : 3.63 Lac
Margin Required : 3.42 Lac
That would essentially mean that
I would need 7.05 Lac to take and maintain this position till expiry. Am I correct? Other wise I will get get a Margin Call.
Thats right, capital required is the cash you’d need for taking the position, in this case about 3.63L.
WITH 3 DAYS FOR EXPIRY CAN I ENTER SHORT STRANGLE WITH APPROPRIATE STOP LOOSES ON BOTH LEGS INSTEAD OF IRON CONDOR.
Yes, you can.
Thank you.
But what is that Margin Required Rs.3.42 Lac.
YOu need margin for selling options and 100% can for buying options. I think both put together is referred to as ‘capital required’ by sensibull.
sir how did u come across the conclusion of max loss which according to you is Rs 5366 ..?
I’ve discussed the calculations in the chapter and also in the excel, request you to please check the same.
Karthik, when possible please add on Chicken Iron Corridor to this article as most traders are recommending that near high vol events. Also the logic of 1/3rd credit for IC may be introduced. (1/2 for Chicken IC).
This is the first time I’m hearing about the chicken IC, need to do some research myself 🙂
Hi Karthik, thanks for this amazing series on options strategies. Are you planning to write a tutorial on the Iron Butterfly as well?
Not sure on the iron butterfly, maybe I will sometime later. But I think IC is a much better strategy to deal with 🙂
Can i get margins reduced to sell options and carry forward without using spreads??
No, you will have to pay the required margins.
Hi Karthik, thanks for the reply.
I actually read about it elsewhere and agree with you that the Iron Condor is better as it is considered to have a higher probability of making profit.
I wanted to ask you one more thing. How does one develop a view on the underlying? Example be it an index (NIFTY) or a stock (RELIANCE). Do we have some tutorials on the same/can you suggest me any?
There are two ways using which you can develop a point of view – either TA or FA. Both the modules are available in Varsity 🙂
Hi Karthik ,
After reading twice Options theory and Strategies chapter now getting confidence .. Thanks a lot for this.
Just want to know in option now how to make Adjustments in given strategies(Specially Strangle, Straddle, Iron Condor ) .. could you please suggest proper book / material for this.
Adjustments can be quite expensive, but yeah, will surely put up some content around it.
Hello kartik,
I have taken the position on short call @12750 at 123 x 1 lot. now this position is in loss, now premium rose up to 225. can i recover this loss by taking position of short put @12750 at 30 x 4 lots. Also i will put stop loss on both side, call side SL will be (123+120), Put side SL will be (30+123/4). Also i will leave both option to exercise by exchange. Please let me know can i reduce the loss in call option by doing so upon expiry.
Best regards,
Amol
You can, Amol. The problem arises if there is a sudden drastic fall in the markets.
When i put figures of in the downloaded excel sheet, only updated max P&L is showing. Not the whole excel sheet calculations. Why?
Ah, not sure. Can you see the linkages in the excel? Maybe is skipping a step somewhere?
Hello Karthik,
Hope you are doing well.
I have two questions.
First, you mentioned that you prefer not to sell puts as fear is stronger than greed which makes perfect sense. However, most of these option strategies mentioned here require us to sell puts. What should we do?
Second, This is a question regarding the fundamental analysis chapter.
Where can we view if a company has related party transactions and what would be a limit before considering it to be risky to invest?
Its upto you, depends on your risk appetite. As a trader, you need to understand the risk involved for each position you’d like to take.
Related party transaction – please dig into the annual report to get the info.
Dear Karthik,
In your Fundamental Analysis module, you have not mentioned about it.
Could you give an idea for above what figure for a related party transaction wrt to sales should one get worried about.
Like for example,
Indo Remedies Pharma has a related party transactions wrt to sales of about 3% while Alembic Ltd has the same as 93%.
Please advise.
The best way to figure is to look into the notes associated with the related party info and understand the nature of these transactions. There is no particular way to learn about this, its best to straight away jump into transaction details and start understanding.
Dear Karthik,
Thanks for your reply.
How would I know the details of the transaction from the annual report? They don’t exactly specify this and give disclaimers saying that these transactions are regulated etc.
How would I spot quid pro quo and faulty transactions like this?
Most companies with decent AR structure give out a section with notes for related party transactions. Use this as a starting point. For example, I remember, DLF would sell properties to a sister company and book it as revenues, but at the cost of inflated receivables. But nevertheless, this was reported in related party transaction in their AR.
Hi Karthik, assuming an iron condor trade works in our favour (underlying stays within the range until expiry), since all the options in our leg expire as OTM we will not be charged a huge STT right?
Yes, as long as options at OTM.
Assuming 24/12/20 expiry, when will you place Iron Condor order? Thanks in advance Karthik!
Sometime between 16th-18th. Of course, it also depends on the premiums.
Sir please tell about the calendar spread strategy
Check this – https://zerodha.com/varsity/chapter/calendar-spreads/
Hi Karthik,
Please let me know if Iron Condor strategy is applicable (safe) for weekly expiry of both nifty and Banknifty
Thanks,
Natwar
Yeah, you can apply IC on weekly as well, although I prefer the monthly expiries.
Nice Article. I came to know I have to go long first and then short to reduce margin. That’s ok. Please clarify sequence while square off all positions.
To square off, I’d suggest you close the short position first and then the long position.
Sir, the arbitrage where a stock future is in premium and we short the futures and long the same amount of equity to capture the difference as the futures and spot have to be same on expiry, is this feasible to do just before 1 or 2 days before expiry, as T+2 wouldn’t be completed & i hope i wouldn’t have to face the penalty that i didn’t have the equity in demat to settle the shorted futures
Yes, you can. In fact, you do it as and when the opportunity comes about.
If we leave the 4 legs to expire, will there be any penalty/charges for the exchange to square it off?
No penalty, Narayanan.
What happens if I sell first buy option in iron Condor
Margins will increase, Gopal.
If the max lost is caped couldn’t the mergin required be the same plus the broker charge.
Hi Karthik, thank you for making stock market simple to understand . Is the margin benefit for iron condor applicable only for day trading(MIS) or also for holding till expiry(Normal delivery)?
Moreover isn’t there high chances that I can make a profit through theta decay if I buy a OTM call option by around 10am and square it off by 1pm as the volatility also tends to decrease during this period?
Mathew, the theta decay is applicable on overnight positions, unless you are trading very close to expiry. MArgin benefit is for overnight positions as well.
Dear Karthik,
Appreciate the subject and the way you teach will not find even with IIM Professors. This is the reason behind Zerodha’s success with in short span of time. Combination of you master people made Zerodha a successful broker in india.
Thanks for the kind words, Anand! Hope you continue liking the content on Varsity 🙂
Please sir add the indications in zerodha kite which is means cpr orb bxtender which is very helpful to everyone intraday thanks.
Ah, these are new to me as well. Have to research this myself 🙂
Do I need to have sensibull to deploy this strategy? Suppose I have 1Lakh rs and I am also concern about brokerage and I want to deploy 1 lot of nifty iron condor. Does Zerodha’s kite platform provide any to deploy the strategy with less brokerage?
Kite provides you with a platform to execute the transactions, you will have to deploy this yourself by placing individual legs.
Hi Sir,
I have two questions.
1. As you have mentioned we have max profit and max loss if we hold the trade till the expiry but on the contrary how we can hold the trade till expiry if we don’t have enough margin to give or take the physical delivery as per the new rules.
2. Suppose we initiate the Iron condor and trade is successful means our view is right. Is there any chance we still can make a loss due to options greeks?
1) In that case your position will be squared off
2) Thats right, the winds can change any second in the market 🙂
I have a basic question about options. when the theta decay value will be reflected in the premium? i.e. whether in the opening price on the next day or it will be decayed every second/minute/hour. (please answer this by keeping in mind that all else are unchanged i.e. Spot, IV, Delta, Gamma, Rho etc.)
Usually, the theta decay is experienced on the end of day basis i.e. from the close price of today to open price of t’row.
Hi sir,
For above stratergy, whats theta and volatality effect.? How should be volatality and theta in perspective?
And cosidering above ,what should be best time before expiry to initiate above stratergy? I mean ’15 days before expiry’ like short strangle or different Considerations? 🤔🤔🤔
Ah, since this is a fully hedged position, I’ve not really covered that part as I think it is not so important 🙂
Can we square off the legs either of North poles (put side) or South Poles(call side) which gives us profit and there after adjust(re-enter) the position maintaining the same spread as well as the net premium received . Would it create unbalance ?
Sort of, but remember each of these sides is a spread itself. For ex, long CE and Short CE is a bull CE spread.
if we do this in the basket will it show less margin?
can we execute this in one shot by adding a position in the basket?
and exit in one shot through the basket?
Sure, please do check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/holdings/articles/kite-basket-orders
This is very clear. Thanks a lot Karthik for the efforts to make it simple and more meaningful.
Can you please tell me how successful it is to do Iron Condor Strategy on Weekly Bank Nifty as an Intraday trading. I am expecting 1% return on intraday basis. Even lower than that is fine but I am looking for consistent returns. Can I go with Iron Condor Strategy to achieve my goal. Or else please suggest any intraday strategy to get consistent returns at defined risk.
Thanks in advance.
Subhash, personally I prefer naked options to trade intraday as these are more effective. Spreads can be an expensive affair for intrday.
” The difference between 9800 PE and 9600 PE is 200 and 10,100 CE and 10,300 CE is 200. The spread should be even. I cannot protect 9800 PE by buying 9700 PE (difference of 100) and then protect 10,100 CE with 10,300 CE (difference of 200).”
I refer to the above sentence. Could you kindly advise what is the reason that the “spread should be even”.
I mean in order to get a particularly uniform premium from both sides…. say Rs. 65 from both sides… the CE & the PE…
it may be possible that the difference on once side could be 100 and the other side be 200. What are the specific
disadvantages of this kind of set up. After all the positions are Hedged except for the difference of the spread.
Looking forward to your esteemed reply. Thanks
If they are not even, your payoff won’t look like an iron condor’s pay off and it will be skewed towards one or the other side. Hence it is best if the spreads are even.
Thanks for your prompt reply. I just had another related query and would appreciate your response.
1. Apart from the distance (or difference) between the two PE or two CE strikes being even …Does the two SELL strikes – both the CE & PE –
also HAVE to be at equidistant levels from the Spot… for an Iron Condor.
2. If not maintaining a SIMILAR distance between the strikes and spot…. can the Bull Put Spread and the Bear Call Spread (which comprises the Iron Condor)…be strategized and dealt with individually to suit our comfort level and risk taking capability – though all four legs may or may not have been bought at the same time..and the difference between the strikes too may or may not have been maintained.
1) Yeah, that would be better
2) That probably works as well, but I’d be comfortable executing this in 1 shot and the same holds true with the sq off as well.
Iron Condor 2% return Weekley or daily trading days
Returns are not guaranteed 🙂
hello sir ,
sir sometime i observe that market trade in a short range say 20-30 points proceeded by a sudden sharp fall and fall in so sharp that even SL is not trigggered and market kept on falling another 100 points and more . sir is there any way to predict such move prior to that fall by observing that market is trading in short range means that people are squaring off their position and something big is coming. yes it is all about chart reading but still find indicators not much reliable in predicting that move or might be i am interpreting those indicators in wrong sense
It is hard Rajat, of course, over years with more market experience, you can develop market instincts which will help you get better at this.
Simple explanation as always:)
Happy learning!
Hello sir thank you so much for explaining new margin system in simplified manner…sir how to calculate margin for call ratio back spread..when we buy additional long we are getting margin benefit but how to calculate it..please explain
Mehul, you can always use the margin calculator right?
hello sir
sir as we extend the market watch of a particular stock it give us information regarding bid and asked quantity.
sir if under ORDERS it is given one and quantity is 1000 then does it mean that it is the order of a single person as order is 1 ?
Yes, 1 order for 1000 qty.
This has been an incredibly wonderful post. Very informative.
Happy reading!
Hello Sir,
An iron condor is essentially a bull put spread + bear call spread that has sold OTM and bought further OTM correct?
Thats right.
Hello Karthik….
The Iron Condor strategy is more often than not a strategy that is carried forward till the expiry – weekly or monthly – as the case may be… so that maximum gain is extracted by way of time decay. It isn’t ideally an intraday strategy. Such being the case, is there a way to protect the trade set up…especially if there is a huge gap up or gap down… on any particular day during the life of the trade… given the fact that we cannot keep or carry forward a Stop Loss on the trade. Given the very volatile movements that we see these days… when the Nifty opens between 100 – 200 points up or down in either direction…..could you kindly advise:
1. If there is a mechanism available where we can keep or carry forward the Stop Loss that was established today to be carried forward to the next day… so that we are protected against huge one-sided moves the next day.?
2. If you could kindly advise what are the options available to protect the trade.?
3. Can buying an ATM Long Straddle at the end of each day be a viable option to protect the Iron condor trade.?
Allen, if you think about it, the IC itself is a fully protected strategy. Any other alterations to this can lead to over-engineering and increase the cost. It May not be worth it.
Hello Sir,
For writing options you have mentioned that we should calculate SD etc.
But this is an extremely tedious process to download data and calculate this every day correct? There must be a better way that calculates daily volatility and daily returns every day?
Does zerodha have this option or any other website have this option?
I agree. This is quite easy for programmers. No, unfortunately, we don’t have this in Zerodha. However, you can use a simple indicator like Bollinger band to identify these SD levels.
hi Karthik,
i have to say , nobody nobody nobody does it better (than U) OMG iron condor was difficult to understand but u r genius u taught me easiest way that my friend who is teaching me trading c ould not teach me well.
I would like to say kindly conver iron butterfly and import parts that could help us in practical way
Thanks for the kind words, Aishwarya. I’m glad you liked the content 🙂
I’ll try and put up the content on IB, but I think the strategy is kind of limited. Will try and put this up sometime.
hi Karthik,
i have to say , nobody nobody nobody does it better (than U) OMG iron condor was difficult to understand but u r genius u taught me easiest way that my friend who is teaching me trading c ould not teach me well.
I would like to say kindly conver iron butterfly and import parts that could help us in practical way
Hi Karthik,
You are the best and any words would be less.
My whole hearted appreciation for the efforts by you and zerodha team for providing such a wonderful content. There is no place I can found such a content like in zerodha varsity.
Thanks for the kind words, Sivaji. Happy reading 🙂
Hi Karthik,
I have a question regarding the Iron Condor strategy for April series of ITC.
ITC CMP- 224
Sell 250 CE@ 2.7
BUY 260 CE @ 1.9
Sell 200 PE @ 1.4
Buy 190 PE@ 0.6
Net premium received = (2.7+ 1.4) – (1.9 + 0.6) = 1.6
Spread = 10
In this case for one lot(3200 qty) my max profit = 1.6*3200 = Rs. 5120 while my max loss is (10 -1.55)* 3200 = Rs. 27040.
Isnt the risk reward ratio too skewed. What do we do in a situation like this?
Thanks,
Dhairya
That’s massively skewed, I’d not take up such trades unless there is a compelling reason.
When in the market, would u advise not to deploy an iron condor?
When you feel that the market maybe be in a range.
please describe the exit order for iron condor
Sell positions go first, then the buys.
Tried to execute this on zerodha but facing margin issues.
While executing first step of selling a call or a put, it requires a margin of 1.4L approx which is a blocker for iron condor since zerodha margin calculator says I require a margin of only 53k.
Kartik, did you follow the same order of execution?
Buy the far OTM call option
Sell the OTM Call option
Buy the far OTM PUT
Sell the OTM PUT option
Hello sir,
I’ve read all of this strategies and they’re very useful too. Could you please elaborate butterfly and synthetic strategies.
Regards Adarsh
Have described by synthetic strategies as well. Butterfly strategy can be a bit restrictive in terms of its range, hence I’ve avoided it.
What a fantastic content man. Hats off to you! Let me ask for some books suggestion for weekly option selling? Thanks again!
Thanks, Amith, the same content works for weekly options as well 🙂
Hello Karthik,
First of all thank you so much for the strategies you have explained in detail. I have learned so much from varsity.
I have a small request if you can teach us about the adjustments to be done in Iron condors.
Thanks in advance 🙂
Glad to note that you liked the content, Naveen. The iron condor is a fully hedged position and its P&L profile does not change much. So any further adjustments could be over-engineering in my opinion 🙂
Hi Karthik,
about the trick question you posed in the article: margin reduction is higher for spread position compared to a neutral market position?
Is it due to the fact that a spread strategy has a upper bound on potential loss whereas a delta neutral strategy like strangle can potentially lead to unlimited losses once the spot price of the underlying moves beyond the breakeven points. Also while a strategy can be delta neutral, as the spot price moves, due to the influence of gamma maybe the strategy will not remain delta neutral forever and therefore an element of risk will start coming back?
I hope that answer made sense.
Yes, essentially in a spread position the risk is completely defined, hence lesser margin.
To answer why the hedged postion requored higher margin inspite of no risk, the delta remains same for put and call options as long as the the strike price remains at the money. When the option becomes otm/itm the delta is no more equal for both options. So rate if increase of one option price is not equal to rate of fall of other option price. Hence the position is no longer hedged. Please correct me if Im wrong
Yes, that makes sense if you look at it from a delta perspective.
Hello sir, I always have appreciated your work on varsity. Can you please do article on adjustments of straddles and strangles?
Let me check on that, Neehar 🙂
I have two questions,
1. How is the Break even high and Break even low is calculated in case of iron condor, (i calculated as LOW=Short put strike price – entry price HIGH = Short call strike price – entry price) but that was not matching with your value
2. If I square off all the 4 legs before expiry will i still get profit provided if the price stays between the breakeven points, and is there any order need to be maintained i which i have to close the orders to avoid margin issues.
Sorry made a typo in my original comment correcting it here
1. How is the Break even high and Break even low is calculated in case of iron condor, (i calculated as LOW=Short put strike price – entry price HIGH = Short call strike price + entry price) but that was not matching with your value
2. If I square off all the 4 legs before expiry will I still get profit, provided if the price stays between the breakeven points, and is there any order need to be maintained in which I have to close the orders to avoid margin issues.
1) Try to put these numbers on excel, you can derive the formula easily
2)Yes, you can.
Thank you fpr your reply.
On my second question, is there any order need to be maintained in which I have to close the orders to avoid margin penality issues ?
I mean while squaring off the four legs is there any order needs to be maintained?
Yes, you need to sq off the short legs and its associated buy leg, in the same sequence.
Hello karthik sir,
I hope you are doing good.
Today i.e. 23rd-April is “World Book Day”.
And I want to say thank you to you a million times or perhaps a billion times for creating a Digital Book called ‘VARSITY’. The experience of reading and learning about stock market from you is something that I can’t forget throughout my lifetime, I am grateful for every minute I spend reading these blogs and I honestly enjoyed it. Its been almost a year since I have started reading varsity (March 2020, start of lockdown) and I learned lot of things about the market and this business from you whether it be Fundamental analysis, quantitative analysis, technical analysis , understanding Derivatives and trading psychology. I realize I have evolved more as compared to a year ago period & still have a long way to go in future. And all credit for that goes to you, sir. Your writing style and explanation made sure that the readers get so much value after reading a chapter. And more importantly you were there to solve any doubts that I had regarding the markets.
I believe I can make a proper use of the knowledge i gained from varsity in my trading career.
Sir, you are the best teacher I found.
I hope god keeps you and your family always safe, happy and healthy. 😊😊
Happy learning and happy reading to you !
Thanks so much for the kind words, Vaishakh. It means a lot to me and my team. Comments like this is what motivates us to do better and work harder to educate people. Hope you continue to like reading and learning on Varsity!.
Hello Karthik,
Would you prefer these strategies for intraday? if yes, in that case, which options strategies will be the best!
I’d prefer naked options for intraday, spreads for longer-term positions.
Dear Sir,
1. Is it good to execute iron condor on first of every month?
2. Any relation of Vix with Iron Condor?
3. +/- 4000 is a good range for Iron Condor?
eg :- 1st May 2021, Bank Nifty is at 34000. Should I Put in Sensibul Strategy Wizard, range as 30000 to 38000?
1) Yes, but do your research properly
2) Hmm, not directly
3) Yeah, why not.
Dear Sir,
Thanks for your reply.
But Answer to first question is confusing.
Till date I am using call and put spread for weekly expiry, which are giving decent 1% weekly profit. Please elaborate on you statement
1) Yes, but do your research properly
for my question
1. Is it good to execute iron condor on first of every month?
By research, I mean the profitability if you were to do IC at the start of the month. Maybe you can do paper trading and see how it goes?
Dear Sir,
I have done some mathematics. I think it is best for weekly trading and trade to be taken on Wednesday as we are able to buy all strikes Wednesday onwards.
Last 10 year range is on wednesday opening (Strikeprice – 1500 TO strikeprice + 1500).
Your guidance please.
Perhaps, I can’t comment since I don’t have any insights into this. You should backtest and observe this for a while before placing a trade.
Hello Sir,
Can you explain delta hedging to maintain the delta neutral position?
You have said to maintain a delta neutral position one must buy/sell Futures as they have a delta of 1.
But this essentially increases margins, increases transaction cost etc.
How does one avoid this?
Essentially delta hedging requires you to look at the delta of your position all the time and ensure that the delta is 0 (by adding up the deltas of the position). If the delta is +ve, then you sell the option to negate it and if the delta is -ve, you buy the option to neutralize it again.
I have taken this condor trade for first time at Banknifty closure.
This is based on Analysis, last 10 years 95% time banknifty lies in +/- 800range on weekly expiry day.
B-31700PE
S-31900PE
B-33800CE
S-33600CE
Net Prenium : 14,925
Max Profit :- 14,925
Max Loss :- 85,075
Break Even :- 31870,33630
My concerns is POP:- 69% only.
Humble request request what is the best value for POP on trade to be taken at 3:15 on wednesday?
Thanks in advance.
Vidyadhan Gedam
By POP I’m assuming you are talking about the Probability of profit. It is very hard to estimate this, I’d rather suggest you look at the risk to reward ratio and take a call.
In this case it is Reward/Risk = 0.18.
How much it should be ?
I’d say at least 1:1
Dear Sir,
i m facing important issue while executing iron condor.
restrictions on buying range.
Whenever I want to buy PUT or CALL to protect my sell positions that strike is locked. it is only open on Wednesday for weekly expiry due to OI restrictions.
Sir, guide Pls.
Vidyadhan Gedam
I understand, I’d suggest you’d look at monthly expiry.
Hi Karthik,
NIFTY SPOT = 14740 at 3:25 PM on expiry day ( May 6 2021 weekly expiry).
14600 CE was trading at 125, even though the intrinsic value is 140, it was trading at 125. 15 rupees less than intrinsic value.
14750 PE was trading at 25, even though the intrinsic value is 15, it was trading 10 rupees extra.
Both 14600CE and 14750PE are in the money, but why PE was trading 10 rupees more than intrinsic value and why CE was trading 15 rupees less to intrinsic value. Please clarify.
The minor difference is to accommodate for the costs of settlement/STT etc.
Hi Karthik,
if settlement/STT cost is almost same for CE and PE, when both were in the money, then both should trade below intrinsic value, but PE was trading 10 rupees more than the intrinsic value and CE was trading 15 rupees less than intrinsic value. Still I am unable to understand.
Thanks
Satya
ITM options start factoring in STT costs on the day of expiry and start to factor this cost in. Its hard to figure what a certain ITM was few Rupees lesser than the other. Day’s supply and demand will also play a role.
How to select stock options for which we can execute this strategy and at what time we need to execute this ? in the start of the month or at the time of an event?
The start of the month is preferable. Stock selection can be in around the ATM.
Hello Sir,
This is a fundamental/ options question.
You have been saying to deploy several strategies if you expect a 3-5% move or if a big move is expected post quarterly earnings.
How exactly does one know if the quarterly earnings of a company is good/bad until the result is out.
How do you expect a 3-5% move?
This is where your fundamental understanding of the company comes into the picture. The better you know the company, the better is your call on this.
HI,
Iron condor is risk management ,We should allow the position to expire or close the position manually,If we are closing manually then how the system knows that we have used iron condor.
Regards,
Ranapratap singh.
Depends on the P&L situation. The system won’t know what strategy you do, it will only read the positions and the associated margins.
Great content.
For more depth knowledge, Can you recommend a book on options.
I’d suggest you pick up the book on Options Trading by Sheldon Natenberg.
Dear Sir,
Just for analysis purpose. Please let me know at what date you have taken this trade on sensibul.
Its been a while, dont remember the dates now 🙂
Dear Sir,
Brake even points in above example of short strangle is 9635 & 10245.
Pls correct me
I guess so, please check the comments, we had discussed this.
sir
1. can we use max pain theory for weekly option to calculate probable expiry strike?(for NIFTY & BANK NIFTY)
2. for the best result in weekly expiry, when we should calculate max pain?
1) Theoretically yes, although I’ve not done this myself.
2) I’d suggest 3 days before expiry.
sir
1. As per above scenario can i plot iron condor with only having rs 50,000 in trading a/c? ( margin is reduced to 44,303)
2. After entering iron condor, may broker ask to pump in more cash in any situation?
1) Yup, do follow the sequence of trade execution
2) Possible, depends on the movement in the underlying
Karthik
I am 76,and have to admit and feel jealous of the enormous patience you have inculcated..Great.Though some comments are irritating you have held yourself and answered politely
Your analysis of Iron condor on excel sheet is simply marvellous.Earlier I was looking for some such detailed exercise for which I had no time .Though I am with zerodha for many years ,I never read University and had obtained various material on payment.
Thanks a lot.
Have you given anywhere about concept of theta,delta etc.
Your comment made my day, Sir! Thank you so much : )
Hi Karthik,
I had short an OTM call option .but the nifty went rising .I received msg I have to arrange extra margin.Have I to increase margin on daily basis if nifty keep rising on 2 continuous days.?what %in rease is there in margin daily? If nifty reverses,will the blocked released to me.?
2.Is there source for knowing delta of stocks
Does it change daily,? Where can we get this value?
1) Thats right, you will have to make provisions for the margins. By how much it will increase depends on the market conditions
2) YOu can check Sensibull. Yes, delta changes as long as there is a variation in the underlying price.
Can you through some light on margin calculation with an example ?
Margins are based on SPAN logic, exchanges levies this margin.
Hello Sir,
Synthetic calls and puts are usually buying/selling future and hedging with put/call.
This gives a pay of structure similar to a buying a naked ce/pe. Why would someone use a synthetic option over a naked option when the pay off is the same and the cost is more.
Some of the strategies require you to do this, Hussain. Like I have a long future, I want to perfectly hedge this…so I deploy a synthetic short.
Hell Sir,
Lets say I think nifty would go down in the next few days.
Would one buy a future and buy atm call (synthetic short) or buy a naked put option.
Plugging into Sensibull, I would require a slightly higher premium to purchase an ATM put than buy an ATM call.
But the future MTM is not a good idea.
So what could I do?
Hussain, Synthetic short is Buy Put + Sell call. If your outlook is bearish, you should look at shorting futures, else buying put. Synthetics are used in a slightly different context…more in terms of hedging position.
THANK YOU, OWE THIS TO YOU, ALL SET TO TAKE OFF:) FIN OPTION THEORY AND STRATEGIES;)
Good luck, Santhosh!
Hello Sir,
To follow up you say hedging position I already own? For example I own some stock and I expect it to become bullish so I buy a put just to safeguard it?
If I am bearish I can only buy a future correct cause short selling a cash stock is only intraday.
So I could either sell a future and buy a call as protection or just directly buy a put.
What would be better to implement?
Hi Karthik
I have a short position on a call option with expiry on 3rd June.I presume option may become .15 or zero on expiry day.Is it necessary to back this when I am in profit?Will the system square off?
2.If nifty goes up and I sustain loss should I back or will the system square off ?
Kindly reply
The system will square off. If you are under loss, it is better you square off just to ensure you are out of the market.
Hi Karthik,
Is it because in the neutral strategy, it involve future and options ,system will not be able to identify it and so is the margin higher compared to spread strategy? or is it because it involved three legs compared to 2 legs in spread strategy? or is it because of the execution risk involved?
I am not sure.Confused. Could you please explain the why it is so that margin for spread is lesser compared to neutral stragery.
That’s because each leg here is hedged and risk is completely defined.
Hi Sir.
I think you skipped my question.
Hello Sir,
To follow up you say hedging position I already own? For example I own some stock and I expect it to become bullish so I buy a put just to safeguard it?
If I am bearish I can only buy a future correct cause short selling a cash stock is only intraday.
So I could either sell a future and buy a call as protection or just directly buy a put.
What would be better to implement?
For a portfolio of stocks, you can hedge the following way –
1) Short futures
2) Buy PUT
3) Sell CALL
Hi Karthik,
I was watching one of Sensibull’s webinar videos.
They take about buying a future with less margin.
In the video Mr. Abid said that if I was bullish, I would buy a future and buy a atm put (effectively) making a buy atm call.
However, buying a future and a put is much more expensive than just buying a naked call.
So he mentioned to buy a future and buy the earliest expiry atm put to reduce costs etc.
My question is if I were to implement this, wouldn’t theta affect my put drastically since it is the last week and reduce its ability to protect my future if I were to be wrong??
How could one implement this?
Hmm, it will have an impact but I guess Abid would have mentioned this to lower the margins. However, if you are bullish maybe just buy the futures.
Hello Sir,
The video I watched his here.
I have also linked the time stamp.
https://youtu.be/OzyhJ4GDots?t=833
Understood, like I mentioned it could be for lowering the margins.
Hello Sir,
But buying a weekly option contract may not be able to protect against the future properly correct?
Nope. Stick to same expiries, lesser complications that way.
Hello Sir,
Volatility strategies like short call butterfly and short put butterfly( buy itm call/put sell 2 atm call/put and buy 1 otm call/put) are net credit but the moment you implement them are already at a loss till the market moves above your breakdown and break up the price.
When would one decide to choose between call or put?
Secondly wouldn’t it be better to implement an iron butterfly instead?
The decision of call or put depends on the premium available at the moment, which in turn is dependent on the current volatility. Yes, Iron butterfly offers a better risk management, but I’d prefer a IC over IB 🙂
Hello Sir,
Shouldn’t puts have greater IV than calls the further ITM they move?
Nope, nothing like that.
Hello Sir,
I watched this video from sensibull hence I am confused.
https://www.youtube.com/watch?v=ayeeICl2IdY
Dear Sir
As times the FAR Nifty CE & PE STRIKES are blocked making the execution of Iron Condor impossible.
How to buy blocked strikes so that Iron Condor is executed?
Thanks & Regards
Mandeep
I understand Mandeep, this can be issue. Trying very hard to find a solution around this. For now you can check the arrangement with Orbis, if that may help you.
Hello Sir,
Suppose i have initiated an iron condor strategy, so at the end of the expiry, do i have to square it off by 3.30PM on the expiry day, or shall it be expired automatically(i.e i don’t have to do anything from my side) or what to be done to pocket the whole premium till expiry.
Thank you.
I’d suggest you square off just before the expiry and don’t let it expire.
Hello Sir,
I have one more question.
When i am buying an option call/put, the maximum loss that i can face is the premium paid. So why is the margin much higher than that. Just as in Iron Condor case the maximum loss that is possible is 5366 but the margin required is 44303. I know that margin is calculated on some percentage of the total contract but in the first case or the latter(post hedging), shouldn’t the margin be the maximum loss because in that case the broker and the exchange won’t face any risk. So what are the possible reasons for having a higher margin than the maximum loss?
Thank you.
For buying option there is no margin, you only pay a premium. Margins are reduced when you hedge your short positions.
Hello Sir,
I hope you are doing well.
If I feel bullish about a certain stock would it be better to:
To purchase an ATM Call option or
To purchase a Future and hedge with ATM Put option. (Synthetic call)
Both have the exact same pay off graph, maybe the ATM call option.
What should I do?
If you are highly bullish, then you should look at buying futures, Kuldip.
Hello Sir,
But buying futures has a huge risk compared to buying an call option or synthetic call..
Should one implement a synthetic call or buy a naked call option.
If I were to purchase index options.
The future expires at the end of the month.
While what expiry date for the option should I choose, same as the future or any other?
Synthetic Future (not call) is the same as buying futures. Yes, it is risky but if the outlook is bullish, then maybe you should consider futures since the best payoff for the bullish outcome is futures.
But sir, in case of iron condor(after all the four legs executed), when the maximum loss can be 5366, why the margin is 44303. I mean, since the maximum loss is capped and there is minimum risk for the broker and the the exchange, shouldn’t the margin be only around 5366 after all the four legs of iron condor executed. What can be the reasons for a higher margin than the maximum loss? That’s my question sir.
Thank you.
Right, I understand Sangeet. But the margin is calculated for the portfolio of instruments (SPAN basis). Cant really overrule this. Also, remember the loss of 5366 is assuming you hold to expiry. The loss can be different if you choose to exit before expiry. The exact measurement of loss before expiry is very tricky since the variable is many and unpredictable.
Got you sir.. Thank you for your quick reply 🙂
Good luck!
Explanation on Iron Butterfly is awaited Karthik bro. Kindly squeeze some time to update it out here. Thanks and Regards.
Sure, but FYI…the butterfly is not as versatile as the IC 🙂
Hello Sir,
I hope you are doing well.
Let say I am moderately bullish on said stock in the near future. Not sure if its price will rise in the next week or by the end of the month.
Should I just buy a vanilla atm call option or instead buy 1 future and buy 1 atm put option.
The payoff is roughly the same, but the future + atm put option requires more margin.
Futures is good, but its just that you will also have to deal with M2M on a daily basis.
Hi Sir,
If suppose I do take a Buy Future buy ATM put, and the position stays flat pretty much towards the entire month.
Time decay slowly eats away my put option, but will my put option be able to hedge my position properly or would it not?
As long as the market stays flat and the option stays ATM, your position will be hedged.
Hellow,
Please clarify ….suppose i make an iron condor or butterly on monday …can i close it same day or is it necessary to hold till weekly expiry. thanks for your reply
You can close it anytime you wish, Veena. No need to wait till expiry.
Hi,
Suppose I do an iron condor and all orders are executed with margin benefit.
Now, can I sell OTM long legs individually?
Post which iron condor will be converted to strangle. Does it mean that I should have more funds to maintain this trade?
Thats right.
Hello, Sir, can we exit iron condor same day or is it compulsory to wait till expiry. please clarify.
as we take iron condor, it enters in green zone. so can we exit same day
You can exit on the same day, no need to wait till expiry.
Hi Karthik
A long journey of reading, and now i am here. Options is the area i always wanted to concentrate, and these articles gave me a lot of insights. Thanks a ton for that.
Also i have read somewhere doing options without adjustments is like driving a car without a driver. Could you please shed some light on how true this statement is. And if that is important , if you could write an article on how to do adjustments, i believe we are covered on every area of options. Thank you !
Sajit, what you’ve heard is not necessarily true. Adjusting options can be quite complex and also quite an expensive affair. Most retail participants don’t need this.
so many articles and thousands of queries all together. and you answer each and everything. Hats off !
Thanks a lot for your reply !
I love doing that, Sajith 🙂
Thanks for the kind words!
Hello Sir,
I have having a lot of trouble initiating positions in stock options.
I tried to initiate 2 bull call spreads with Guj Gas and Cadilla HC. The OTM strike prices are having a bid/offer spread of roughly 2-4 points.
So does this mean I cannot implement options on stocks apart from nifty/bank nifty and 10 stock options.
Buying futures is risky, so what else could I do?
Yup, these options have wide spreads, hence bulk of liquidity is in Nifty. Some of the larger companies have better liquidity, you should check that.
thanks for this strategy. I understand that stoploss is not required here, as it is a covered call. Also i agree that only very few times nifty will move out of our range in a week.
But still if i want to exit with a minimum loss from this strategy ( as i dont want to bear the max loss shows in the sensibull platform), how can i put a stoploss in this strategy. Agree that i can exit manually if the loss exceeds my risk threshold, but i dont want to take risk on the big moves happenning in the market, if i am not infront of the screen ( you know very well how crazy nifty move was, during covid peak and while market was recovering from Covid)
Keerti, its hard to place a SL, its best to exit all the legs. Which means SL for individual legs. But I guess your margins will increase if you do this.
Yes where to put, how to put stoploss for a iron condor strategy is my question as well. I dont want to get into a max loss if i am away from my monitor. Thanks in advance
Please check my above response, Shyam.
which means i should be check my screen in regular intervals. isnt it 🙁
Thats right, Keerti. In fact any F&O position needs constant attention.
Sir to follow up with my previous question.
Only nifty, nifty bank have tight bid ask spreads. So does this mean I should not initiate derivative positions in a Gujarat gas, Nam-India even though I think that the company will move/stay in the direction I expect to?
Can you give a list of other top companies that have tight bid ask spreads?
I’d be hesitant to trade contracts that aren’t liquid, Ketan. I’d rather stick to liquid counters.
Hello Sir,
This essentially reduces my positions to 12-15 such companies.
What could I do for other companies? Buy them in cash? It wouldn’t not result in the same rewards as options?
Even if I implement futures, it does not implement the same versatility as options.
12-15 is ok, as long as you get profitable trading situations, Ketan. I’d be happy with 1 trade a month as long as I know enough conviction about it.
Hello,
Assuming I initiate a Bull call spread on HDFC bank. 1530 CE and 1550 CE. My max profit is when the cmp reaches 1550 on expiry.
Lets say the CMP reaches 1550 much earlier before expiry, however around 1560 ish levels and reverses to 1545.
When the stock was at 1560ish levels I had not yet achieved my full profit and it was roughly one third of the max profit I would get if I closed my position early.
My question is should one close their position earlier in that situation or is it better to wait and hold on?
The decision to hold or sell really depends on your conviction, Samindar. Yes, the profit will not be to its full extent before expiry, so what you take home will be lesser than the estimate. Its only upon expiry where you will realize full profits.
Hello Sir,
TCS is announcing their quarterly results on July 8, 2021.
I am confused on whether I should initiate a long straddle/straddle or short strangle/iron condor.
The ATM volatility has been rising slowly everyday, so not sure what I could do in terms of that? According to sensibull the IVP is increasing.
I have been trying to find anything meaningful regarding the results, read that analyst expect the revenue to increase by 4%.
Let’s say I was to initiate a long straddle/strangle, when would be the best time to initiate? When exactly next to the result should I initiate?
If I were to a short strangle/condor when would be the best time to initiate? When exactly next to the result should I initiate?
Sincerely,
Trace
I’d not be very comfortable with buying options around events, shorting maybe. Why don’t you paper trade all the strategies, both long and short to figure which one worked the best. MAybe you can be better prepared for the next big company announcing results?
Hello Sir,
TCS is announcing their quarterly results on July 8, 2021.
I am confused on whether I should initiate a long straddle/straddle or short strangle/iron condor.
The ATM volatility has been rising slowly everyday, so not sure what I could do in terms of that? According to sensibull the IVP is increasing.
I have been trying to find anything meaningful regarding the results, read that analyst expect the revenue to increase by 4%.
Let’s say I was to initiate a long straddle/strangle, when would be the best time to initiate? When exactly next to the result should I initiate?
If I were to a short strangle/condor when would be the best time to initiate? When exactly next to the result should I initiate?
Thank you,
Trace
I guess I responded to this query earlier.
Hello Sir,
In your option strategies modules you have mentioned that the best time to implement long straddles call/put ratio back spread, bear call ladder and bull put ladder around results of stock options.
Let’s say I would like to initiate an iron condor/short straddle on TCS.
The result on July 8 after market hours.
Do I initiate the position on July 7 and close it before July 8 end?
Not sure when exactly do I enter the position as the premiums are rising due to a rise in IV
If its short, I’d suggest you initiate around 6 closing or sometime around 7th.
Hello sir,
If I do initiate a short, when exactly do I exit? 7th before close (before results announced) or after 8th close (after results announced)
Post results is when the volatility is likely to reduce.
Hello Sir,
The results would be announced on Thursday 8th pm after hours. So before Friday morning, everyone would already know the result.
What can I do to exit my position. When would be an appropriate time?
You will have to sell it on Friday morning.
Hi,
Can put/call seller exit before expiry date like in put/call buy?
Yes, that’s possible.
Hello Sir,
You have mentioned that it is best to exit a short strangle/iron condor just before the announcement.
If I exit Friday morning, the market has already understood the result and could likely gap up or gap down.
Not sure what I could do?
The idea is to ride the volatility, short at the peak (i.e. before the event) and exit when the volatility starts to cool off i.e. after the event.
Hello Sir,
I understand that.
My fear is that once I initiate a short iron condor and wait the next day for the markets to acknowledge the results, there could be a high chance that there could be a gap up or gap down. Which could wreck my position.
How would that happen? IC keep you insulated right? And you’d know the worst case outcome even before you initiate the position.
Hello Sir,
IC does keep me insulated. But to earn 1200-2000 I would end up losing easily 9000-10000 by creating an Iron Condor.
Not very easy to apply before results if the stock decides to gap up or gap down.
Yes, I agree with you on that part.
Hello Sir,
Infy is announcing its results on July 14 AMO.
Do I initiate an Iron Condor on July 13 or July 14 closing time and exit July 15 on market opening?
I’d suggest 13th. You can paper trade this to figure how it works.
Hello Karthik,
How important it is that the protective strike price distribution should be equal as you mentioned in your example, 200 on either side?
I am confused the strategy (link below) in Moneycontrol by Santosh Pasi, the distrubution is not equal. Lower side it is 3 (63-60) and on upper side it is 5 (75-70).
Kindly guide. Thanks.
https://images.moneycontrol.com/static-mcnews/2021/07/BHEL-0907.jpg
IC should be equal, if its not, then its a variant of IC, not really IC 🙂
Hello Sir,
Would I initiate this on the 13th Morning or during closing time?
During the day, Sapna.
Why we use Spread to calculate the loss? P&L depends on the premium given and taken right? Please help me understand why Spread is used to calculate the Max Loss in Iron Condor. Thanks in advance.
YOu can consider the entire strategy as a whole, and if you do, then the P&L can be captured looking at the spread. Otherwise, you can look at each leg separately and consider its P&L.
Hello Sir,
I am thinking of shifting to zerodha from HDFC sec.
I have a couple of questions if you are able to answer.
For writing options in Nifty/Bank Nifty I would like initiate short bear call spread/ bull put spread/ iron condor etc.
I have to buy the higher up/protection option and the sell the main leg option.
I have been reading that Zerodha does not allow one to initiate OTM buy options.
What range of options do I get to initiate for this? It says for Zerodha I would have to Initiate the sell position first and then the buy position. For the system to reduce my margin.
Creating a naked sell position first would require a substantial margin requirement.
Is this true and can you explain what I should do?
Thats right, Chetan. No other options around this.
Hello Sir,
What is the range of OTM options I can buy with on Nifty and Bank Nifty.
Is this also restricted in stock options?
You can check the order window itself for this. No restriction for stocks.
Hello Sir,
You have mentioned that you try to implement several strategies when you expect the volatility to rise.
When exactly do you know that the volatility would rise for a certain stock apart from events etc?
When exactly do you know that the volatility would drop for a certain stock?
You can always calculate the historical volatility and compare that to the current volatility to get a quick sense of where the market is. Its more of a quick and dirty method to get a sense of where volatility is, but it helps.
Hello Sir,
I am using Sensibull’s IVP for volatility.
It tells me where the volatility is but, it doesn’t exactly tell me if IV will rise in the future or not.
So it is very hard to asses if IV will increase in the near future or decrease in the near future. Confused about this.
That opinion is something you will have to develop, Santhosh. Generally speaking, if current volatility is lower than the historical volatility, then expect volatility to increase, else the other way round.
iron condor or iron fly…its now very tough to apply this strategies due to open interest restrictions on OTM long stikes prices any workarround to this
You’d need to put the sell order first, Abhijit.
Hello Sir,
I had initiated a short iron condor last friday.
I had sold 15600 PE and bought 15300 PE and sold 16200 CE and bought 16500CE.
My issue is now that I was initially profitable, but nifty is not gapping down badly. Should I square off my PE position or do I adjust it and sell 15400 PE?
Also when initiating Iron Condors, do you create a tight spread or do you create a large spread so that one could adjust the position?
Hamit, you can adjust it by rolling the puts, i.e maybe by buying 15100 PE and selling 15200 PE or something like that, but these things will increase the cost of your transactions and put you in a tighter spot. Breakevens will increase. Rather I’d suggest you figure out your original thesis on why you initiated the IC and if you still hold that thesis then stay out or get out completely.
Hello Sir,
So Nifty moved to 15585 and changed direction.
My 15600 PE was broken, but nifty expired much above my PE position.
I got worried and squared of my PE position resulting in a loss.
1) My question is, lets say I am facing this situation again.
2) When exactly should I roll the put, when the Spot becomes 15650 or 15550? And do I roll it down 100 points or 200 points?
3) Also is it better to keep a tight spread which prevents adjustments or a larger spread which allows me to adjust my position?
1&2) You can keep rolling and adjusting, Harmit, but at some point this is of no use since your transaction changes will mount and works against your profitability. You’d rather stay with your original position 🙂
3) Yes, I personally prefer that.
Hi, Karthik,
I am a complete novice. I started learning ropes two months back. I studied the first 8 chapters of your module 5. Then studied Iron Condor which lures me to stock market. I still need some clarifications, please:
1. This strategy is for one month expiry.
2. If long call 10300 is hit and market reverses to 9600 – before expiry; then the loss booked is 5,366/-. Should I trade again for the same strikes?
3. What happens when 10,300 is hit; market reversed, but remains above 9600 – again a scenario before expiry; and vice-versa. In this case should I sell & buy call options as before?
4. What if I play the same strategy for weekly expiry?
You have explained with utmost lucidity & am really grateful for the same, but still some confusion persists. Please, help. I wish to start with options and am joining Zerodha soon. Many thanks,
Mahendra Kumar Beesani
Please don’t get lured easily, stock markets are the toughest place to make money. You need to fully understand the risks involved before venturing into the markets.
1) Yes, but you can apply this on weekly expiries as well
2) Depends on your conviction. But if your conviction is strong, then you should not be squaring off the position in the first place
3) Same as above
4) No issues
Btw, an IC by design covers you for all sorts of market situations, in my experience, there is no need to tweak this.
Hi Karthik ,
Great explanation of iron condor strategy. Thank you.
I have a question,
Even though this strategy is hedged and maximum loss is already defined, how can I still put stop loss.?
Say max profit is 5k and max loss is 10k but I want to limit the loss I can bear to say 2.5k, then how one should adjust stop loss?
Does it need to be placed for individual order of all 4 legs?
Yes, you can. All you have to do is when the position hits a -2.5K, exit all positions 🙂
Sir,
1) Can I create a IRON CONDOR , by buying far OTM options for next week or monthly expiry and simultaneously sell OTM options for the current week for INDEX OPTIONS ( if total premium payed for long options is less then premium received for short options ) ?
2) Can we create this strategy directly by buying options initially and then simultaneously selling options, or do we need to place a BASKET order ?
3) Does BASKET orders always get executed in the defined sequence of order , even if we place all orders as limit orders, because if sell order gets executed before buy order then the margin requirements will not reduce ?
4) Do margin requirements increase for the index options position which we already have with us ( similar to stock options ) as we move closer and closer to the expiry date ( even if I am not facing any loss )? ( because there is no physical settlement in index options ). or will margin requirements increase only if my loss extends over and above the funds available with me ?
5) Will I need any extra margin for squaring off my IRON CONDOR position if I square off the short option legs initially and then square off the long option legs ?
6) When I analyze any option strategy on sensibull it shows both THETA and DECAY in option greeks, I know what is THETA, can you explain me what is DECAY ?
SIR, I REQUEST YOU FOR A QUICK AND CLEAR RESPONSE; AS I HAD ALREADY POSTED ALL THIS QUESTIONS BY CREATING A SUPPORT TICKET THREE DAYS BACK AND HAVE NOT RECEIVED A SINGLE RESPONSE FROM ZERODHA SUPPORT TEAM YET AND IT IS ALMOST NEXT TO IMPOSSIBLE TO GET IN TOUCH ON PHONE WITH ZERODHA SUPPORT TEAM .
Thank you in advance, and Thank you for all the queries you have solved in past, they are already working out for me .
1) Yes, initiate the sell leg first in monthly options to avoid rejections
2) Sell and then buy
3) No sequences in baskets
4) Yes, margins increase a bit, but there is no physical settlement
5) No
6) Its theta decay as a single term. I think its the same term.
Good luck.
Sir,
Are we able to buy far OTM options for the same expiry or different expiry if I already initiate a sell order for OTM option for the same expiry or different expiry ? On Zerodha ?
Yes, if you have sold first, it should not be a problem.
Dear Kartik, Please clarify me the below and really need help on this topic.
On thursday 29th July i placed a trade as under
1. 15950CE 5TH MARCH SELL – 2 LOT
2. 15900CE 5TH MARCH BUY – 1 LOT
3 16300CE 5TH MARCH BUY – 1 LOT
The above 3 were placed in strategy mode together in delivery. only the buy side got executed and sell side got rejected.
now the customer support is telling me that short selling is only intraday and cannot hold till expiry.
1. sell order is only for intraday and cannot be hold till expiry – {please clarify this}
2. suppose i place a butterfly or iron condor which consists on buy and sell together, how can i hold the trade till expiry.
3. IF SELLING IS ONLY INTRADAY THEN HOW CAN WE PLACE A IRON CONDOR FOR MONTHLY CONTRACT.
please clarify the above to me. thank you very much.
The execution of IC seems off, it should be 4 different strikes, with all being the same number of lots.
1) This is because of OI issue, to avoid, you should sell the options first before placing the buy order
2) You can, provided you sell first
3) This is not only for intrday.
Sir,
Do we get margin benefits for IRON CONDOR strategy even if we execute sell order initially and then execute buy order, same to the margin benefit that we get when we buy first and sell later ?
Yes, you do.
quick question :-
so if i initiate a iron condor and which broadly like two buy and two sell positions the margin is less and risk is managed. But after sometime if i decide to square off 2 legs ( sqaure off one SELL and one BUY ) position obviously risk is increased but how does that affect marigin. Do i need to pay new margin or nothing new to broker or exchange?
As if i would have initiated like just one SELL+BUY strategy from beginning it would have costed more margin….Please help understanding this.
This depends on which legs you square off. If you Square off just the puts or just the calls, then what you will be left will still be hedged. For example, if you square off both the Puts, then you will have a long CE and short CE, both of which are hedged. You’d still get a margin benefit.
Hi Sir,
Please clarify…for any hedging trade in options which order should we place first in strategy mode to get margin benefit.
1. is it buy order
2. is it sell order
i have one lak funds in my account. I placed a sell order 36500 1 lot at 65 and 37500 buy order at 11. for 12th august expiry. the calculator tool showed me the margin requirement is Rs. 45000/- but still my sell order got rejected and only buy order was executed. the reason flashing was that funds are short and i need to add more 50000 to execute the sell order.
this order was placed together in strategy mode. first sell order and then buy order.
please explain to me what went wrong.
thanks you
Here is the order of execution for IC –
Buy the far OTM call option
Sell the OTM Call option
Buy the far OTM PUT
Sell the OTM PUT option
Hello Kartik!. Nice stuff here. May I know whether this module is finished or not? I did not come across all the strategies you mentioned in the opening chapter of this module. Will they going to get published?
Thank you.
This is sort of complete for now, Karan. Decided to not proceed with a few of the strategies due to high margin constraints. Will try and revisit this sometime soon.
Hello,
Today on Friday 13 August. Nifty monthly PE options from 15700 and below prices increased despite nifty 50 moving 1% upwards.
There was decent liquidity, so why would this be the case?
The volatility too could have increase, Harish. Hence the increase in premium.
Hello Sir,
My question is how do I know if Vix is gonna rise or not?
Usually when the market falls vix rises, but yesterday vix rose while the market also rose.
How does one understand the movement of the vix if one need to sell options??
Harish, one easy way to do this is by comparing today’s vix with historical volatility. Not a clean way, but works as a quick reference/guide.
Hello Sir,
Last chapter “Iron Condor” is not included in Option Strategies – PDF available for download.
Kindly make it available.
Thanks,
Nisha Patel
Checking on this, Nisha.
can you please suggest the best option strategy to practise and earn for working proffisionals
(9-5)?
I’d suggest you invest in MFs via Coin.
I got what benifit we can get from Iron Condor, but i do feel that Iron Fly is more benificial than this As it has more risk side than Iron Fly. Although probability of staying in profit side is more on Iron Condor. Can you please include one chapter on Iron Fly that would be nice.
I will try and do that Soumya. Meanwhile, I personally prefer the IC over IF simply because of the probability reason that you stated 🙂
Sir whats the difference between iron condor and butterfly strategy?
The difference is only with the range within which the underlying has to remain for the trader to remain profitable. In IC, it is a big range, in butterfly it is a very narrow range. Apart from this, everything else is the same.
Hello Sir,
I have been comparing historical vix and today’s vix. Todays vix is clearly less than historical Vix yet it is not rising.
It slowly rises and then drops back to the same place. It has been range bound for a while now.
How do I know when to use it so I can sell options?
You cant precisely time the volatility (in fact, you cant time anything in that market for that matter), you can only develop a perspective. Having said that, you can look at volatility along with price action to get a sense of where the prices are heading and therefore the volatility.
Hi Karthik,
Thanks for the lucid explanation.
If we went long the call and put at nearer prices to CMP than the Short entries, would there be any difference?
Can you please share more context? I’m unable to get your query.
Well, in Iron condor, the shorts are entered near to the cmp of the underlying and the longs are further away. What if we reversed this i.e. enter the long call and long put near the cmp of the underlying, and the shorts further. As example, if CMP of BN is 30000, enter long call @ 30100, long put @ 29900, and short call @ 30200, short put @ 30300.
Sorry, correction (short put @ 29800):
As example, if CMP of BN is 30000, enter long call @ 30100, long put @ 29900, and short call @ 30200, short put @ 29800.
There is no problem, Sudheer. I’d suggest you enter these numbers and plot the payoff, if it matches up to the payoff of an iron condor, then you are good to go.
sir if spread is narrow and received premium is higher then what will happen . for example in banknifty 36700 put at 446 and 36800 call at 500 then 37600 call at 195 and 35900 call at 197 . there are 15 days to expiry . in this case Total premium received 554 and what would be maximum loss because as per rule spread – premium received is max loss but in this case it is confusing. plz clarify
Satish, usually narrow spread is lower breakeven, which means higher risk. I’d suggest you put these numbers in excel to get the exact values.
Unfortunately in Zerodha, we can’t buy otm calls before selling the desired strikes.
Hi,
Varsity is very helpful and I am very thankful for that. Awesome information is documented.
Could you please write a topic on Calendar spreads and diagonals?
Also can you write something on adjustments of strategies?
Swanand.
We have a fairly detailed note on calendar spreads here – https://zerodha.com/varsity/module/trading-systems/
If I want to shifting to lower does I need additional margin
Shift to lower meaning?
Hello Karthik sir. Thanks a lot for your module on Technical Analysis, Options Theory and Options Trading Strategy. I am still trying to digest this content. However a couple of questions:
1) Is it possible to trade in the market with a full time job?
2) After I have some understanding of Options Theory and Options Trading Strategy. What next? How do I start putting it to use? Is there anyway that I can deploy as little capital as possible to learn.
1) Nope, it’s really hard. Think about it, how can you manage two full-time professions at the same time? That said, stick to your regular job, try and make long term investments. If you are keen on trading, then at least look at positions that you can hold for a few weeks. Basically, positions that don’t require you to constantly look at the screen.
2) Develop a point of view, maybe using Technical Analysis and put that in use by taking an appropriate position in the options market
Hi,
I tried to execute Iron Condor on Zerodha using a basket order. Zerodha would allow me to short but wouldn’t allow me to buy the long OTM option because of OI limit. Is there a way around it?
Rohini, unfortunately, no. You will have to set up the trade within the range.
i read all the option strategies. For expiry, all the information is exactly correct. For intraday, no strategy work it. For example. if i buy long straddle(buy ATM CE and PE), it goes maximum in -ve P&L. How to find breakeven for intraday. if spot moves +ve direction, CE moves very slow and PE moves very high. Direction is correct but change in derivatives different.
Is there any calculation for breakeven for intraday option? Is naked option trade best for intraday?
These options strategies work best when held to expiry. Intraday P&l for these strategies is not so straightforward to calculate. I’d suggest you look at Sensibull for this, they have a P&L for possibilities before expiry.
Please, also explain the adjustments in case the underlying trends in any direction or take v shae / w shape recovery.
Adjustments can be tricky, take away a lot of costs and complicate the entire affair.
If I go for short strangle with required margin and i want to close my position in 10-15 minutes post selling , is there any time restraint in doing so or i can go for buying the positions and squaring off my trade.
You can square off the position anytime you wish, no need to wait till expiry.
Sir, thank you for sharing this amazing knowledge. Could you please cover box spread and butterfly strategies if possible. Thank you.
Noted, will try and cover it.
Hi Karthik. Great strategy. I am trying one thing. That is. In the mid point of an iron condor I am adding a long straddle. Seems to be ok. But any pitfalls?
Amazing work by Zerodha. As a college student, this is the easiest way for me to get accurate and easy to digest information to learn trading. Just finished options strategies on the app. Thank you Karthik for such amazing modules!
I’m glad you liked it, Aditya! Happy learning.
I think its best strategy for everyone. its automatically sets of gain vs required margin.
INFOSYS is at 1816 on 9 jan 2022.
Lets play with numbers…
1) what will be strike price for put and call? either 1820 or 1800
INFY 1800 CE 69.90
INFY 1820 CE 59.50
INFY 1800 PE 45.55
INFY 1820 PE 56.00
We are selling here so 1800 CE and 1820 PE will increase profit. aka 69.90+56=128.90
2) why to choose 1820 and 1800 as strike price, as we increase range between them our profit chance is on higher side?
for strike price 1820 and 1800 max profit is 15795
for strike price 1780 and 1840 max profit is 11025
for strike price 1760 and 1860 max profit is 7380.
As we improve our chance of success profit decreases.
3) For balance leg 3&4 why choose slight OTM & ITM option why not deep ones?
sorry i’m leaving my calculation here because i found above data are mismatching with option chain i trusted third party data my mistake but you can consider concept behind it.
Karthik please correct me if i am wrong! thank you
I’d suggest you look at Sensibull for data. The spread that you choose for IC depends on your risk appetite, which is dependent on the individual. So there is no right or wrong answer here 🙂
Hi, The sequence suggested by you for initiating Iron Condor is something not permitted on Zerodha. Zerodha does not allow us to buy far OTM calls/Puts
Where can we get the data or details on
Max profit at Expiry
Max loss at Expiry
Breakeven at Expiry
Pls suggest.
You can calculate the same as explained in the chapter or even check Sensibull for this.
Sir
Please define box neutral stratgey briefly with Usdinr or nifty
Do check out this, its the building block of a box trade – https://zerodha.com/varsity/chapter/synthetic-long-arbitrage/
Hi Karthik! Thank you so much for sharing these concepts in such details for non-finance folks 🙂 These are one of the best sessions I have read so far on F&O concepts, fundamental & technical analysis!
I just have one question if you can answer. As for as what I read and understood from above strategies, if a person implements Iron Condor as you have mentioned above, I feel that he / she has his losses covered that too as a finite entity at extremes. So my question is, if that’s taken care of then there is no other scenario which will result in losses? (whatsoever market movement happens on either side). I tried Options Pay-off analyzer and verified it. But just wanted to confirm if I am missing anything.
NB: I am asking this mainly from Nifty perspective. So no buyers for exercising lots at expiry etc. scenarios wont be applicable, is my assumption.
Appreciate your response!
Thanks again – Prajakt
Thanks, Prajakt. I’m glad you liked the content. Yes, with a strategy like IC you cover directional and volatility risk. But like you rightly said, liquidity risk remains and you can work around that by sticking to highly liquid contracts.
Hey karthik.. I mostly avoided options cus i cant able to understand at the beginning but all this time i invested and traded with your fundamental and technical modles and some other books.
Then suddenly i found options interesting and im little mature now haha.. I enjoyed this option module.
I wanna thank you for your efforts on explaining option strategies.. That call ratio back spread is simply awesome and giving me edge as i wanted..
Still I like to know more important strategies like calender spreads and all😂.. Now i was trying to learn but its not as simple as u explain as indian🤣.. So i felt to comment on your module, hoping u will do more strategies once in awhile🙂.
You are my beginning education resource from the last 6years, i hope u stay in good pace and provide us more knowledge 😊.. Tc
Thanks Krishna, I’m glad you liked the content here. I will try and add more content on options 🙂
Good luck and happy learning!
Hi Karthik,
First of all, thanks a ton for such simple explanation for such new & complex topic.
I just 3 queries on this.
1) What would be best time to enter and setup Iron condor for weekly options, Friday or Monday?
2) Is there any logical method to select OTM & far OTM strike prices of long & short options than selecting like 200 pts away from ITM?
3) Are there any tax implications of squaring off iron condor early before expiry over letting it expiry on expire on Thursday?
1) I’d bet on Fridays as the premiums are slightly higher
2) Yup, you can select based on theta and stuff. But my experience says that the odds are slightly better with slight OTM options
3) Active derivative trading will be considered as business income. Check this module – https://zerodha.com/varsity/module/markets-and-taxation/
Hello Mr. Karthik.
I hope you and your family are doing well.
For example If I have written 16800 PE and bought 16300 PE. I wrote this when the market was around 17600. I felt nifty had support around 17250, 17070 and finally 16850. (These were points nifty reversed substantially)
It decisively broke 17250 and even fell towards 17050 after which it reversed.
Now my option of 16800 which I had written for 15 points moved up nearly to 56 points. Sure the loss was a notional loss and due spot going the wrong way and the Volatility rising. Usually I try to exit if my option becomes 3-3.5 times its value.
So my option did nearly become 4 times it value but Market took substantial support at and reversed.
I am not sure When to maintain a stop loss.
As multiple times I am correct, but 1 time I am wrong I can lose a substantial amount.
Could you please assist me in this matter?
Thomas, but your 16300 would have gained a few points rights to offset the loss? By the way, why did you choose such a large spread? When you create such a large spread, the protection leg i.e. 16300 PE in your case will not gain as much in value as the 16800PE. Ideally, it should be very close to the 16800PE maybe 16500 or 16600 PE.
Hello sir,
Sometimes I keep a large spread if I have to shift my 16800 PE to maybe 16600 PE. Since I am writing 16800 as it is the premium is roughly 10-15 points. By writing a near position ie 16600PE as protection it eats a substantial amount of profits and I am unable to adjust my position? Am I wrong? I choose not to be risky and I am risk averse.
What are your exit positions for writing options? How should I employ it if I am writing weekly positional options roughly 700 points both sides from spot?
You can offset the small premium by writing early in the series, Thomas. If you are writing weekly, try to look at setting up the position on the previous Friday.
Hello Sir,
I hope you are doing well.
Thank you for your response.
Usually i try to write half on friday before expiry and the second half on the monday/tuesday.
On Friday even 600-700 away the premiums are usually 12-16 points. Not much more than that. If I were to buy a nearer strike it would be atleast 6-9 points. It does not make sense to hold this position for only 5 points correct?
I’ve not tried this, maybe you can write on Friday and buy Monday morning? See how that goes?
Hello Karthik.
Just for normal risk purpose reasons, it isn’t advisable to write Naked CE and PE contracts overnight correct?
Normally I try to write half on friday and half on monday.
My big issue is with adjusting or exiting options.
if you could assist me on that matter.
Its ok to write naked options, Thomas, as long as you construct your IC quickly.
Hello Sir,
Can you help me with when I should Adjust or exit my option positions?
When exactly does one do this and go about this?
Thomas, I’m not really a fan of adjusting an IC. IC is already heavily engineered, and in my opinion, you don’t want to overcomplicate it.
Hi Karthik,
Thanks so much for responding to queries and clarifying the concepts in detail. I have one more query, if you will. I did go through various forums but could not gather exact information around this specific point. Lets take an example that I had sold an OTM Reliance call at the beginning of the month. I collected the premium and waited till expiry so that the premium become negligible since Reliance itself went down or is no where near the strike price of the contract which I sold. In such case, what happens on the day of expiry? I assume that the buyer of the contract will definitely not exercise the call since the spot is much lesser that the strike / contract price. But in that case, can I just keep waiting and let the contract expire (ideally that’s what I have read in case of Nifty / Bank Nifty (indices)). However, in case of equity contract, do I really need to square-off my position on at least the expiry day compulsorily? And if I don’t do it, will the exchange / broker mandate me to take the delivery of such a huge quantity of shares?
Appreciate your guidance here!
Regards,
Prajakt
If the option is OTM and you are convinced that the option will expire OTM, then you can let it be. No need to square off since the option is worthless anyway.
Thanks for clarifying this point Karthik! Not sure if it’s explicitly mentioned anywhere for equity contract. So, I thought of confirming it with you! Appreciate it 🙏
Sure, good luck!
WOULD REALLY LOVE YOUR ANALYSIS ON IRON BUTTERFLY SIR…WAITING
Scenario: Nifty at present –> 16250
Iron condor created by implementing below:
-1x 10MAR2022 15500PE
+1x 10MAR2022 15300PE
-1x 10MAR2022 17000CE
+1x 10MAR2022 17200CE
If Nifty closes at 16500, what might be the overall brokerage+STT charges that I have to pay? The payoff chart indicates premium collected of +1,560 but I am not sure what is the actual profit
Debayan, you can easily give this as an input to Sensibull’s strategy builder and get the figures – https://sensibull.com/
Also, what will be the payoff (including any brokerage/STT) if I close the strategy:
1 –> before expiry
2 –> after expiry
This as well, use Sensibull’s strategy builder.
Hi Karthik,
If all the 4 legs of Iron Condor are about to expire OTM than could you please elaborate on what all charges/taxes we can save on an expiry day by not “squaring-off” positions as they are now going to be worthless?
If all 4 are OTM, then there is no physical settlement. Option prices will be zero, hence no taxes as well.
Here you go💥 Hats off to Karthik sir!
I just can’t express how I am feeling at this point! You are just amazing 💯
So here is pretty clear roadmap for taking trade(at least when I am writing options):
1. First I will download past closing prices data of underlying from NSE website. Then I will calculate daily avg. returns, volatility then I will covert these figures into days I am interested in (Generally 6-7 because we initiate short position on Friday prior to expiry week). This will give me upper and lower boundary in which underlying is expected to trade up to expiry.
2. I will sell call 2/3 strikes away from upper boundary and sell put 2/3 strikes below lower boundary.
3. To hedge, I will take respective long positions and I can easily check my breakeven points which I will make sure are not inside my calculated range of underlying (Thanks to Sensibull!)
4. Wait till expiry and eat premium (Sometimes omit 😅)
Please add if any considerations I am missing and please have a comment on effect of volatility on Iron Condor
This should do, Dhananjay. Wishing you all the best 🙂
Only advice – track the market very closely and get feel for these black swan events. If you sense things are looking shaky, exit all positions and wait.
Thanks a lot for clarifications throughout the modules and this amazing content!
Glad you liked the content!
Hi karthik sir, you know what buzz the crypto was having last 1-2 years, but in fact unlike stocks, i don’t know how to trade crypto so i don’t trade but now i feel that i should be having some basic knowledge about crypto
so sir can we expect one module on crypto (or) there is any other website to learn it
thank you sir 🙂
Muthu, I’m myself not aware of crypto. Not sure if I can make any content on crypto 🙂
Sir can you add something about relation between volatility and Iron Condor?
Actually, IC is fully insulated against the geeks, but let me check 🙂
Hi,
1) Do you suggest any options buying strategies for intraday other than straddle and strangle?
If you are buying for intraday, I’d suggest you develop a point of view on the underlying and rather trade futures than options.
Hi
If the spreads option strategy has 80% probability and iron condor has 50% probability which one to take?
I’d go with the one with the higher odds 🙂
When will adjustments for iron condor will be post on varsity???
Avinash, as I’ve mentioned earlier, adjustments may not be really required.
Now a days average weekly candle of nifty is 600 points, from spot above and below 600 in nifty the premium in starting week is nearly 40rs…selling 40rs ce and pe and buying nearly 15rs premium for both sides. For this stratagy sensibull is showing 75% probability of profit, for every week we make profit of 50rs (-40ce+15ce-40pe+15pe) if you take 50×50 =2500 rs for remaining 25 trades we make 0 to 300 poins loss.. 300 is spread plus taxes really this strategy is usefull…hope you understand?
Avinash, it all depends on how and when you apply the strategy. You need to think through the market conditions and the situation with the premiums and arrive at a decision to set up the trade or not. Clearly applying the strategy all the time may not work.
sir , it is good that the spreads must be equal . because this strategy is excellent because nifty often moves in rage
can we make differences of 200 for example at present nifty is at 18000 ? can we make short strangle of 18200 and 17800 and the cover them with 18400 CE and 17600 PE respectively .
in this above study you have made a difference of 300. nifty at 10000 you sold 10100 and 9800 i think this is a typo error .
Satish, of course, you can do that. For spreads, you can even look at 300 to 400 points (basis market condition).
What’s the difference credit spread and iron condor .?
Or is it the same.??
Both are different, Antony.
Sir when the iron condor strategy was made, how many days was there for the expiry?
Sir,
If i want to frame a rule, when to apply iron condor in market. If india vix is below 20 can we apply this strategy..
Sure, you can. Make sure you backtest it once.
Sell OTM ( CE& PE)- how far from ATM ? or can we maintain any particular delda value (30 to 40%)?
YOu can go upto 3 strikes from ATM on both CE and PE side.
I got one issue today.
I decided to write Bank Nifty 38200 CE. To make defensive positions I bought 39100 CE and 39500 CE. All for 7th April expiry.
I created basket order and got some figures something like this-
Required margin: Rs 1,23,958 /-
Final margin: Rs 18,514 /-
My question is which margin do I need to have in my trading account to execute all these three trades? Yes I am executing long positions first and then sell position.
My buy order get executed but sell order get rejected saying- “Insufficient margin”
Please clarify!
You need the higher one to execute the trade.
1) If I need to maintain required margin(Higher one) then why would I hedge (From margin benefit perspective)?
It’s roughly the same as margin required for naked selling.
2) I read about it on Zerodha support, it says- I will need to have required margin in my trading account. But after orders execution, only final margin (Which is lower) will be blocked. So can I use unblocked margin for new trades?
Hi sir,
On 1-April-2022 I was trying to place an order using Iron Condor strategy.
So these were the strikes I selected:
BankNifty spot – 37000
Buy 200 quantity – 35000 PE and 39000 CE which were trading around 20-30 Rs and Sell 100 quantity 36000 PE and 38000 CE which were trading around 130-160 Rs (I created a basket with 4 leg). Required margin were around 1,90,000/-. I had capital in my account more than the required margin but still the order failed. Please suggest me how can I place an order of similar type.
Kausik, maybe you had other open orders as well? Please do check with the support team for this.
Backtested option strategies(short iron condor, short iron butterfly) and popular strategies using the OPSTRA website…Strategies that look good to study in varsity or in google failed to make money in reality
Except for short straddle and strangle(weekly series) giving a good return for 1 year but failed when tested for 5 years, not even an FD returns.
Almost all strategies failed for 5 years period… unless there are adjustments in the strategies
Your comment, please
Well, it depends on your backtesting parameters right? You can’t really generalize right?
Hi Karthik,
It is computer automated……Ex: iron condor if buying OTM call sell and little far OTM call buy similarly for PE OTM sell and buy
if I keep it until the end of the week and if back-tested, generated negative returns in reality
There are no adjustments discussed for strategies I think in varsity or outside blogs
Not a big fan of adjustments. These things take up a lot of capital and charges pile up. Although automated, I guess you are blanket deploying these strategies right? The thing is that you need to develop a sense of when to use these strategies and when not to. I know, from your perspective its sounds very open-ended, but that’s the way I see it.
Sir, plz say about adjustment too in iron condor . How to adjust it especially when there is a directional move.
The iron condor is fairly complicated when it is set up. In my opinion, it does not really need adjustment.
Respected Sir, if we wish to deploy an Iron Condor in Nifty weekly expiry contracts, what would be the best day and time of the week to initiate this strategy?
I’d suggest you initiate this early in the series.
Hi Karthik,
Read this few times but looks like I overread or I am missing something. 🙂
Out of the 4 trades we considered in above example, 9600 long Put will cover for any further downside (9500, 9400, 9300….and so on) and similarly, 10300 long call will cover all further upside to 103200, 103500…and so on.
Now, which trade/leg will cover if market expires between 9600 and 9800 or 10100 and 10300 (not subtracting the cushion given by premium received). Will these be handled by sold CE/PE? Also what should be my criteria of selecting strike price for long CE/PE other then should be equidistant from sold CE/PE. Should the premium I pay for long PE/CE be weighed in any manner or strike price should just be the maximum range I see the spot to move.
Please guide.
Yes, the inside legs will cover for the in-between situations. Also, don’t isolate the legs, look at it as an overall set and the way it reacts to the market situation.
Sir what would you suggest, initiating an Iron Condor at closing time on Thursday for next Thursday expiry or on Friday morning?
Friday mornings should do, Prashanth.
And sir the hedges that we buy, should they be of current week or the next week? I’m asking this because the current week hedges if bought on a Friday morning would decay to quite an extent till Monday, and if a directional move comes on Monday the premiums won’t rise much to cover our losses due to the decay that has happened over the weekend.
Prashanth, always stick to the contracts that you wish to hedge and the expires should match. Its very hard to hedge using different expires.
Noted Sir, thank you very much 🙂
Good luck, Prashanth.
Karthik I think It’s because since deltas are following :-
Long CE = +x
Short PE = -(-y), where x+y = 1
Short Futures = -1.
Even though above seems perfectly reasonable for lower premiums the truth is if market falls exceedingly the premiums move exponentially( Intrinsic + Extrinsic Value ) and time value is at highest at ATM which is not the case so with futures as it already has a delta of 1 and no time value therefore, the MTM losses caused by directional options combination in put call parity spread might exceed what’s compensated (hedged) by Futures. Therefore to cater for higher ELM higher margins are required.
Absolutely, margin is a function of volatility and margins try and cover for situations that are over and above the delta and theta:)
Adjustments?
Not really required as IC in its basic form is already quite complex 🙂
Sir
How to increase the breakeven range in case Iron condor on both sides.
I mean I want my trade to be profitable in between 3% Rise or 3% fall of Nifty Spot
For that you need to increase the range right?
Sir , can I take hedge trade like bull call spread or iron condor in options greater than 2 or 3 months .
Don’t think so, liquidity is not there.
Sir, as today is may 13 . Can I trade 28 July expiry niffy of banknift option ? If not far month option trade greater than 2or 3 months
Yes, you can provided there is liquidity.
Sir ,
Liquidity is there around 1000 to 7000 . Is it sufficient?
If you are trading a small number of quantities, its ok. Btw, liquidity increases as we move closer to July expiry.
Sir ,
The reason behind my query is the arbitrage . There is a huge gap of premium between two . For example , 28 July expiry of banknifty option price at 32000 is around 500 and 32100 is at around 900 . If I make credit spread of 100 will I be able to pocket 300 points at expiry . If not still there is no loss except brokerage . Plz clarify .
You can back-test this and check. Btw, when you are setting such trades, you need to look at liquidity and execution risk as well.
If one needs to close all positions, what should be the sequence of closing the position in iron condor so that margin penalty doesn’t arise.
Close the sells first and then the buys.
Hi Karthik. Could you recommend some material/books for Options Adjustment Trades aka Firefighting strategies?
Cant think of any focused only on adjustments. In fact there is no good quality content on this topic I guess.
Would love to see a module on it written by you. Adjustment trades seem to be a game-changer letting us have more control over our trades if done right.
I’ll try and put up something:)
I came across something beyond my reach of understanding. Here is what I was trying on Sensibull
Bank Nifty Spot: 34276
ATM strike: 34300
Time to expiry: 5 Days
Strategy strikes
34300 CE Sell @450
34300 PE Buy @435
34200 CE Buy @509
34200 PE Buy @401
When Payoff graph is plotted, it shows a straight horizontal line with fixed profit of Rs 174. No matter where I set Spot price or days to expiry or time to expiry, payoff graph is simply horizontal line all the time. Even when I change IV for all strikes to any arbitrary value still payoff line stays horizontal.
I know that there must be something that I am not getting. Please clarify.
Must be something wrong, cant result in such a profit profile 🙂
Buy the far OTM call option
Sell the OTM Call option
Buy the far OTM PUT
Sell the OTM PUT option
As u told for this actual margin required is high(say 2lakh).
If we want place/hedge it as above mentioned order as limit orders then system automatically understand the margin requirement and reduce margin right? or is there any way to place the orders to get margin benit?
Yes, as long as you execute the strategy in the same order, its fine.
Above trade which I posted has net delta of zero and only Greeks it has are Vega and theta. So my question is what happens to theta and Vega of option contract after expiry (Let contract expire in ITM or OTM). If delta is zero means positions are delta neutral so only impact that will be of Vega and theta
Post expiry, the greeks don’t matter right. The contract is settled, greeks are done with,
This is so interesting! I was checking on some strikes to buy n sell, When I set deep ITM CE and PE to buy such a that whole position delta is zero, We can get enormous returns but only if we could be able to execute orders on same price as that of LTP. There is very big difference between bid and offer price for such deep ITM contracts which we can’t fill out and hence no big returns would be generated. This is amazing!
Yes, it is. But as you mentioned, many things have to fall in place for this to work in your favor 🙂
However, delta neutral strategies seems interesting to me. Will delve more into it!
Sure, good luck!
do we need to put stoploss in ironcondor positions sir??
Not necessary in my opinion.
Hi Karthik,
I am new to trading and had a quick question.
If my iron condor setup hits breakeven in any direction before expiry, can I square off all positions at zero loss or will I incur some losses?
Yes, you can square off the position, no need to wait till expiry.
@ Karthik Rangappa sir pl can you explain how effect of time chart (for various expiry days) can be created in Excel sheet
Mahesh, as far as I know, this was rendered in R software. Not sure how this can be done on excel.
Can i exit one of the positions out of four. will it impact my margin requirement.
Yes, that will have an impact on your overall margins.
This might be my repeated question but I am really not getting path to get starting to learn quantitative trading. Here’s what I understood
– Mathematics and statistics
– Computer programming
Then what? When I will learn these two things, what next? Is there anything other domain I will need to learn or do I have to practice same things? Do you know any quant from India whom with I can connect (May be not now but sometime in future)
Its just that actually 🙂
A combination of Math+Stats+CS is applied to markets. There are plenty of people who are doing this in India.
Thank you sir! I will just go ahead with what I need to do right now. It seems path will get clear with time
Sure, good luck!
Hello sir,
I am newbies and trying to understand trading… I tried some option buying but most of are in loss… Can’t say all in loss… Now today I got to know about this strategy… Will try once and then if have any query will send here… Thanks for provide so informative strategy…
Happy learning, Pradeep. Maybe you can paper trade for a while before deploying your own funds.
Sir I don’t know what’s wrong with me. Initially I was trading on 1.5 SD, hit loss. Then now I started 2 SD Iron condor. After 1 month I hit loss again. Loss is not problem but loss is so big that it surpass all the profit accumulated over time and it takes more than that. When I look back at my P/L report either I am zero or in loss. I don’t know why is this happening. And I am like well I haven’t earned anything over these months!
Any specific reason or anything I am missing on? I do check calculations 3/4 times and Sensibull also shows SD levels which matches my calculation with some slight buffer. Today I squared off my 2 SD Iron Condor on bank nifty. Got hit in PE options. -5.5%
Dhananjay, it is very hard to figure out what is going wrong. Maybe you’ve picked a volatile stock or for that matter indices too are volatile. By the way, I’d prefer SL at 2.5 or beyond and definitely not 1.5SD.
Yes I may put SL at 2.5 or beyond but if by chance SL got hit even once all gains may be erased. Is there any way I can make adjustments to my positions in case market goes against me?
Adjustments is not easy, come with its own costs, and whatever you do, the charges will pile up.
Dear Sir,
Accept my heartiest gratitude for this wonderful information. I am into stock market for more than 20 years and have read many many books. What i had got was bits and pieces and still felt something is missing. But you presented all this information in very logical and systematic manner, which is more useful than around 25 high profile writer(s) book. Awesome.
Thanks a lot.
Venkat Das
Venkat, thanks for the kind words. I’m really glad you liked the content here. Happy learning 🙂
Please do a module on Algo trading; it’s been pending for so long. Meanwhile please guide me on how do I get started on it given that I have required coding skills in python. I have been trying so long to find a solution where I can get all the basic knowledge to help me get started but most of it is paid and very expensive. Even a short 3-hour course on NSE costs upwards of 5 to 6k rupees. Please do help, I’ve been stuck at searching for resources for so long…I just want to get started with learning.
Shaib, why don’t you try simple strategies to begin with? Something like a moving average crossover system.
Hi Karthik Sir, hope you are doing good!
One clarification
For example if required margin is 100000 and final margin is 40000
40000 gets blocked..right?
Can we use remaining 60000 for trading other stocks.
Yup, you can.
Pl clarify that in iron condor strategy,I have to purchase both call and put option at the same time and similarly write both option at the same time other wise premium calculations will change.
Pl detailed
Yes, and you can use baskets to do that.
how to calculate Upper Breakeven point and Lower break even point?
Dont know how I missed adding that bit here. I will try and make a video on this, but for now you can check Sensibull for BE points.
Hi Sir ,
I have a query. Today 5/9/22 at 9:50 5 min Candle Closing Bank Nifty spot was trading at 39697 i shorted 40000 PE at 522. At 10:15 Bank Nifty spot on 5 min candle make a high at 39823 and my PE make a low of 457 same time 10:15 5 min candle . My question is when I enter my PE was 300 points ITM and on 10:15 it’s was 200 points ITM so my PE should have eroded atleast by 100 pts but why it eroded only by 65 rupees.
The premium is a function of many different variables, not just the direction (delta). At the time market direction changed, other variables also change right – like speed, vega, time etc?
Hi Karthik,
Can you please work on Leaps Options
Noting this down, maybe in future.
Hi karthick
I am unable to put the learning to practise ,whenever i do,i am ending up in loss.can you please suggest me ways to resolve it
Where are you getting stuck? Which part? I can try and help you with that.
suppose i have created a short strangle at the starting of the month considering that market will expire in between the range.
but i want to convert the short strangle into iron condor after 20-25 days to limit my losses because at that time i can have the clear picture where the market are about to move.
1) is it possible to convert already purchase short strangle into iron condor afterwards?
2) if yes, then my net credit should be calculated by considering latest premium of sold CE,PE or the premium value at a time of sold(i.e month starting value) ?
1) Yes, you can convert by adding the other legs of the condor
2) You will have to consider the value you pay/receive from the recent legs (to make the condor) and the premium already paid/received from the previous legs.
Can you please make a study material on how to adjust straddles and strangles
I’ll try and make a video on this, Pranav.
My queries please
1.Best time to enter into Iron Condor
2.What does Unlimited Loss actually means – I mean if underlying is going out of Break even on either side can we exit the sell position and limit the loss.
3.Is there any criteria for premium receivable and paid.
1) Its not time-based, its a situation based. So look for whats happening in the market and deeply to IC if the situation demands
2) Yes, you can always do that and your loss is restricted to the price at which you exit
3) No criteria as such
Hi sir
ANSWER NEEDED
On 4 October POWER OF STOCKS in YouTube posted video named learn from my loss in which he sell 37500 CE for hedge
U buy 40500 CE . My question is how can anyone get 3000 points Hedge in NRML because when I tried in ZERODHA a pop up comes saying it’s not allowed as per sebi rules to go for NRML u can take it in intraday but can’t convert into NRML
It is an open interest restriction. Btw, you can sell the option first and then buy. You wont have any restrictions that way.
Hi Sir ,
In that video he buys 3000 pts DEEP OTM OPTIONS IN NRML . For option selling its possible to get NRML but for option buying i did not get it . If you still do not understand what i am trying to say you can watch the mentioned video [ https://youtu.be/R8wEjB2HEyg ] . In which he buys
As long as you have your NRML shorts in place, you can also have NRML longs.
HI SIR ,
Today at 9-21 I create basket order I added 38500 CE to short in NRML it got added but when I added 41000 CE as a hedge zerodha NUDGE POP UPS u cannot go for NRML . U said [ As long as you have your NRML shorts in place, you can also have NRML longs ]. but its not happening
Try using the include existing positions.
Dear @Karthik,
Thanks again for lucidly explaining the Option strategies..But can you include Certain key strategies like Calendar/reverse calendar,Iron Fly ..as these are highly relevant in the given market…
Awaiting your input,
Rajiv
Noted, maybe I’ll try and do a video on this.
What will be the brokerage and other charges any tentative figure ?
It is 20 per executed order. More details here – https://zerodha.com/charges/#tab-equities
“The sequence of trade execution makes a big difference here. If you are considering an iron condor, then here is the trade sequence – Buy the far OTM call option”
Unfortunately these days, I believe this is not allowed. What is the best workaround to this?
YOu can sell the options first and then buy.
Hello Karthik, according to you which strategy is better Iron Condor or Iron Butterfly?
If both are similar, then how to choose between this two?
I prefer the condor 🙂
Hi Karthik,
For-profits as mentioned in the table should I have to wait till expiry or can exit before as welll ? Currently my stock is in the range however profit is minimal , way lower than projected
You can exit anytime you wish, Amit. No need to wait till expiry.
Why is margin required for Iron condor not equal to Maximum possible loss?? In this case shouldn’t Margin be 5366 instead of 44k?
What if you remove the hedge of an iron condor and break the spread? Also, the margin is a function of SPAN calculations.
sir im new comer so a question coming to my mind, that after observing and studying this module It seems that most of these strategies are only useful when you are about to hold the trade till the expiry But if you do scalping or intraday or swing trade its not much of use (except for hedging).
Thats right. If you are scalping, you are better off trading naked positions or even futures rather than a spread position.
Hi sir. The steps of entering ( the sequence of order execution ) an Iron Condor is explained. What is the sequence of exiting the iron condor before expiry
You can exit the positions for which you pay margins and those for which you pay the premium. Basically shorts first, longs later.
will I be paying 4 brokerages for four legs and what about while exiting. With limited profit and charges plus STG tax what I am left with miniscule subject to getting profit. am I right
Since there are four legs involved, you pay brokerage on all four legs. Hence, you need to evaluate the situation (spread) and figure if the trade is worth executing or not.
Hi Karthik, reading your articles was so very exciting. With very limited understanding of computers, I tried to build a payoff diagram for Iron fly Strategy which I couldn’t. Can you please upload the excel sheet for ‘Iron Fly’. Thanks in advance.
Sure, I’ll try and do that soon.
Hello Karthik thanks alot for such a wonderful content, can you please add articles about specially for expiry day trading and expiry day trading strategies
Noted, will try and make a video on this sometime soon.
NEED TO LEARN MORE HOW TO SELECT A TRADE AND ENTER , HOW TO BUY INSURANCE , HOW TO SHIFT POSITIONS AND WHEN TO EXIT .
I AM KAMLESH SHAH FROM MUMBAI. 9820073106 IS MY CELL NUMBER. KINDLY CONTACT ME IF YOU CAN TEACH ME HOW TO TRADE IN LIVE MARKET. YOUR FEES SHALL BE PAID SIR.
Everything we know is already discussed here Sir.
Regarding to the trick question, in spread we long and short options in equal quantities where as in put call parity arbitrage, we long a call option +short a put option + short a future option. So that extra short future increases the risk of portfolio for broker as well as for exchange also, thats why spread has higher margin reduction as compare to put call parity arbitrage. Although, the in put call parity arbitrage is very tiny.
Thanks😊😊
Correct me please if i was wrong
Yup, good luck, Abhishek 🙂
Dear Karthik Sir,
What is your suggestion this iron condor will suit for weekly/monthly positions or for Intraday??? Please guide us….
These four leg strategies could be overkill for intraday, Brama.
Since we are expecting the premiums to come down during consolidation and profit from it in case of Iron Condor, we need theta factor to work in our side. So is it better to choose a second series expiry or anything which is going to expire sooner for this strategy rather than a beginning one? Or am I missing something?
Its always a tradeoff, if you choose further expires, you get higher premiums. Series which will expire soon means lesser premiums.
Dear Karthik Rangappa Sir!
When we initiate iron condor strategy and for any strategy for that matter, the general idea is to keep the set up till the expiry day. Am I correct?
At the same time, I have the freedom to dismantle the setup any time before the expiry provided I arrange for the margin requirements. Is that correct?
Yes, that’s the idea, but as you said, you can dismantle or square off the setup anytime you wish.
I like the way you used the word ‘dismantle’ in the options spread context; I guess I’ll borrow that from you 🙂
Sir what about adjustments?
Eg – NIFTY is currently at 17953. So considering this I construct an iron condor as follows,
Sell – 18000 CE, 17800 PE
Buy – 18100 CE, 17700 PE
Now lets say spot moves near 17800 and the lower breakeven is around this. Assuming that I think the spot can move upto 17750 – 17700, can I adjust the strategy by squaring off the 17800 PE, 17700 PE positions and opening up new positions in 17700 PE and 17600 PE, provided I get the right balance?
Not a big fan of adjustments, Satish. It is expensive and a constant fight to keep up with the changing deltas. Besides, why do you want to over-engineer an already well-engineered strategy?
Also I’m having a long time confusion on an aspect. Hope you would help me with it. I’m aware that BANKNIFTY can drag NIFTY up or down. But is the inverse of this situation possible considering only NIFTY contains major bank stocks, but BANKNIFTY doesn’t have enough concentration on stocks of NIFTY other than banking stocks?
Simply put, can NIFTY drag BANKNIFTY ?
Nifty is the overall market, so weakness in the overall market impacts bank nifty and other stocks/indices as well.
True Sir. But the reason I asked regarding adjustments is because there are some OTM restrictions as imposed by sebi. In that case I’m aware that I have to execute the sell order first followed by buy order to avoid the nudge. But that takes away the purpose of margin benefit right? This is difficult especially in case of banknifty, as the range can be vast. So any solutions for this sir?
– Also would iron condor be a good strategy in case of stock options as well since it’s a 4 legged strategy?
I get your point, Sathish. Let me thing through this. IC usually works well.
Please add this chapter in PDF
Will do.
Respected Sir,
Let say “I have shorted out of the money CE on Monday evening (weekly expiry) and margin blocked for this position required lets say 1.1 lakhs and exited the position on Thursday morning, will entire margin blocked for this position will be released at the time of exiting the position or only 60-80% of the blocked margin will be released at the time of exiting the position”?
Yes, the entire margin will be released.
Respected Sir,
I know stock options are physically settled but what about index options. Whether nifty and banknifty are cash settled or physically settled?. If cash settled only difference amount is credited/debited right?. If physically settled how it is possible?
Index are physically settled, Sudharshan 🙂
But sir many of other traders and websites states that indexs F&O are cash settled but you are stating that index are physically settled. I am confused a lot right now
Index is cash-settled, and stocks are physically settled.
Thank you sir and Thanks to the Zerodha varsity community
Happy learning!
Hello dear Karthik Rangappa:
Great lectures and Excel sheets!
You wrote: Max Profit = Net premium received. In this case, it is 128.45 (9634/75).
It is not clear what the 75 represents ?
Yet do you know good strategies with 8 legs for volatile markets?
It was the lot size back then 🙂
Hi,
When you use the Iron Condor, on expiry day should we close out the positions or do nothing.
Thanks
VT
I’d suggest you close the position before expiry to avoid physical delivery, unless you want physical delivery.
Sir, in new NSE INDIA website from where to get historical option data , strike wise and with different expiry period. in old site it was possible and easy to get……kindly help and share the link…or any website from we can trace the old data..
Try here – https://www.nseindia.com/market-data/live-equity-market
Hello There,
Thank you for excellent work on these strategies.
Somehow this 14th chapter is not coming in the .pdf.
Thanks in advance.
Checking this, Sumit.
Sir in new website of NSEINDIA, where to find the historical data of option chain, in old website it was easy to find out. can youp please share the link.
You can click on historical data for any stock you want – https://www.nseindia.com/get-quotes/equity?symbol=INFY
Hello there,
Great work once again!
I’m a kind of new in options and would like to know how to execute these four orders simultaneously in a trading system?
Sumit, you can check this – https://support.zerodha.com/category/trading-and-markets/kite-features/basket-order/articles/kite-basket-orders
Thank you again for quick response.
To be frank I’m yet to go thru’ the link.
But just a quick question, does this link also cover ‘how to trade the adjustments to be made in the strategies’?
In my view, there is no need to adjust these trades as there are 4 legs to this trade and anything more is over-engineering 🙂
Also, the cost of adjustment is quite high, so its better to avoid.
Hi Karthik, your explanation is awesome. Although i’ve understood the funda of max loss and max profit, but i still am not convinced if market opens a gap up/down of 1000 points(which is rare in Nifty) then what will happen to our position, in case of monthly expiry -> expiry day, 1st week, and middle of the month. Will i incur a loss more rhan max loss defined. And vix lets suppose reaches 20+
Of course, if there is a 1000 points gap up or down, then there will be a skew in your position and may lead to a change in the P&L. But that said, I’m guessing the change won’t be drastic since a strategy like IC is fully hedged.
Thanks a lot for the confirmation, please update here if you find any exact figures of such scenario in live market or backtest or if you hear any such incident from anywhere. Appreciate your efforts bro 🙂
Shivam, Sensibull is your best option 🙂
why is margin more than the maximum loss that can occur in iron condor strategy?
Margins are mandated by exchanges, Hardik.
Hello Kartik
I really appreciate the effort that went into these modules.
However, a suggestion I’d like to give is if it is possible to make a module on the Smart Money concept and how to form a directional bias.
Thanks, Chetan. If you think about it, entire TA is about chasing how smart money operates 🙂
Karthik, I kind of find it hard to believe that the ones who are actually moving the markets looking after candlesticks and indicators. or am I missing something here?
Not necessary that they are looking at CS. They could be looking at other factors as well. But irrespective of what they are looking at, their final act will manifest in price action, which we read via candlesticks. Do check this video – https://www.youtube.com/watch?v=1kQjXFL4Mfc
Thanks Karthik 🙂
Understood this one 🙂
Sure, happy learning!
Hi, great article. Say I enrolled in this stretegy on Tuesday for the upcoming expiry on Thursday. Shall I let the 4 legs(2 calls and 2 puts) expire on their own? Or do I need to watch for them time to time?
It is good to keep an eye from time to time, just to check the options have transitioned from OTM to ITM. If ITM, then you need to think through from a physical delivery perspective.
Hi Karthik,
Do you have a view/recommendation on which tool or platform (Sensibull, Opstra etc.) is best for screening option trading opportunities, designing and deploying strategies?
You are asking the wrong person, Vishal. I’d say Sensibull any day 🙂
Thanks for the response Karthik, I guess I will take a second opinion from someone outside Zerodha 😉
Yup, please do 🙂
I have a question that is unrelated to the current topic. What is the career scope of an equity dealer? Is it considered a good career path?
You can join AMCs, PMS, AIFs etc. Ideally, it would be best if you focused on becoming an investment officer rather than a dealer. I’ve put up 3 videos on the same topic here – https://www.youtube.com/watch?v=qI_Dr9P76Bw&list=PLX2SHiKfualEz2gJkDLFmc9WlufjfLBUx
How breakeven is calculated if a new position is added to adjust an iron condor?
Assume market is going up so as a part of adjustment if I sell PE then how is breakeven calculated ?
Swanand, this can be easily computed by platforms like Sensibull. You just have to enter the relevant values and the platform computes it for you.
Hi Karthik,
I was trying to execute an Iron Condor on Zerodha today. While the system allowed me to execute the strangle (short trades), it blocked me from creating the hedges (long positions) citing some 15% OI restriction rule. Is this expected or am I missing something? Pls advise.
Vishal, you must have had an open position or something else. Else, the buy should go through if you have the sells in place.
Seems like an all time winning strategy. But I am sure it must have its own limitations.
Could you please mention the scenarios in which an iron condor fails and what/how are the effect of these failing scenarios on our P&L.
More than failure, money management is the key here. You need to figure out if the cost is worth the trade.
Otm call, put buy is rejected in zerodha(sensibull)
Please execute the sell orders first, Ritesh.
how the Rs.9,634/ premium received can you explain it
Thats what I’ve explained in the chapter.
What is difference between required margin and final margin
Vikrant, so it is SPAN and Exposure Margin that you need to look at now. Check this – https://support.zerodha.com/category/trading-and-markets/kite-web-and-mobile/funds/articles/what-is-span-and-exposure-margin
Can we initiate position on last day of expiry (at the closing time) and keep open till next expiry. what would be the max loss and Proft.
Yes you can, P&L depends on prices.
Hello Karthik.
This SEBI rule of 50 % Collateral and 50% cash is effectively killing positional iron condors and any type of option selling and even killing basic strategies like covered call or secured put.
If I have pledged 1.5 crore worth of equity and after the haircut I get a 1 crore margin. If I initiate a strategy of Iron condor worth 50 L I need to have 25 L cash on hand. Who would keep that much money as cash on hand or even put it in a liquid bees as it would just be a waste?
Even basic strategies like selling 15%-20% far OTM calls for equity stocks which one owns as a covered call is useless as you need to keep that cash on hand or otherwise pay 13% interest for the entire month which each up whatever that is earned.
After all this headache you have to pay 30% tax.
The only other way to prevent this cash requirement instead of margin is to do intra-day selling which is practically useless as intraday trading is risky and you cannot consistently make money in the same.
How does one go about this?
Hello Sir,
Any update??
Reposting this incase this was missed by you sir.
Hello Karthik.
This SEBI rule of 50 % Collateral and 50% cash is effectively killing positional iron condors and any type of option selling and even killing basic strategies like covered call or secured put.
If I have pledged 1.5 crore worth of equity and after the haircut I get a 1 crore margin. If I initiate a strategy of Iron condor worth 50 L I need to have 25 L cash on hand. Who would keep that much money as cash on hand or even put it in a liquid bees as it would just be a waste?
Even basic strategies like selling 15%-20% far OTM calls for equity stocks which one owns as a covered call is useless as you need to keep that cash on hand or otherwise pay 13% interest for the entire month which each up whatever that is earned.
After all this headache you have to pay 30% tax.
The only other way to prevent this cash requirement instead of margin is to do intra-day selling which is practically useless as intraday trading is risky and you cannot consistently make money in the same.
How does one go about this?
Tanmay, apologies, I may have missed your earlier message. Yes, i do understand what you are saying, but unfortunately there is no way around this. One way to think about the cash requirement is to look at it as the ‘raw material’ for your business. If you are actively trading, then cash component is an essential part of that business.
About tax, well, what can I say about it 🙂
Hello Sir,
Thank you for your valued response.
SO how does one go about doing basic strategies like Iron Condor, covered call etc? Or should I completely stop doing the same??
This is a strange time and I am not sure the point of giving 100% collateral and then still asking for 50% which essentially makes my collateral worth 35% assuming a 30% haircut on the initial collateral?
What are the professionals and smart money doing as there would be no way they would keep so much cash undeployed in a bank account or put it in a liquid fund??
Covered call you can do, but you get margin benefit as your stocks are in EQ segment and option is in FO segment. Iron condor, yes, you need margin money, there is no doubt other way around it 🙂
Yes, regulatory requirements, no way around this as well.
They dont keep it idle, they use it for active trading, so in that sense, money is always deployed.
Dear Karthik Sir,
For covered call for example if I sell HDFC bank 1720 CE for RS. 1.50 (Net value 550 X 1.5 = 825). Total margin required is Rs. 80000 which means cash margin is Rs. 40000. Now if I do not have the Rs. 40000 cash I would have to borrow at 12% interest ie 1% a month is covered call is a monthly strategy. Assume interest cost is Rs. 400 + transaction charges brokerage etc comes up to 430-440. So ideally the gain is 430 pre-tax (30%). You cannot even now hedge your portfolio using futures or calls since the cash requirement.
I don’t know what the point is considering this completely destroys option selling. Option selling required huge margins, high risk low reward and now adding 50% cash compulsion makes it not feasible for anyone.
How does smart money deal with option selling as they are required 50% cash or liquid fund as margin and which basically is detrimental as that money does not get deployed and not practical to keep in bank account.
I guess we discussed this already. Yes, option selling is a margin heavy business. Another way to think about it is, if you have your own cash, you save the interest payment. Like I mentioned, think of cash as the raw material for your business of trading. No other way around this.
Hi,
Is there anyway I can enter the expiry date in this excel and all the data get adjusted automatically in it?
Thanks!
Ah no, you cant. But do check Sensibull site for this, they do have an option for selecting the expires.
Sir, I checked around noon and found that puts were added heavily and consistently throughout the day. Even last 1 hour data in Sensibull showed that in net,the Calls were squared off with puts being heavily added. Futures OI change was also flat. But inspite of this, market suddenly went 30 points down. Would this be due to cash market’s activity or something else? Thanks.
Very hard to say, Sathish. Also derivatives data is now staggered across multiple instruments and very hard to conclude based on just one are two contracts.
Sir,
I have been a vivid follower of your discipline and have read the whole Zerodha conent during the last 10 months. I had no idea before 10 months about the capital markets. Meanwhile, except F&O, I have tasted all the areas like Day trade and Positional trading. Below are the experiences:
1. Day trades: Incurred loses consistently
2. Positional trades: Incurred profits consistently.
Coming to Future trade and after reading the content, I understood that this should not be my cup of tea since the methods require Programming skills and consistent watch. Being a full time employee, this is not getting suitable for me.
Coming to Options trade, I have learnt the modules and understood the articles and decisions that needs to be taken at various market situations. Now, since, you have been associated with this area long, what should be your advice regarding Options trading? How should I start taming this animal? I highly require your advice here.
N.B: Regarding investment, I have already created a portfolio and keep on SIPs. Have good health & term insurance.
Anirban, realising what works for you and what you should avoid in the market is a very big step. People take years before they can figure that out, I’m glad you’ve been able to acheive that in a much shorter time.
Options is a ok, as long you have a positional trade in perspective. Intrday and short overnight trade maybe risky and may require you to watch prices constantly, unless you are doing expiry trades. But expiry trades can be risky in terms of volatility 🙂
Hi Karthik, I just want to let you know that, you and varsity team has did splendid job by providing us with such great content…Kudos man and to varsity team, Just want to ask that how to do research by own on building own trading system and learning more advanced level concepts to trade more efficiently just wanted to know how to educate ourself in this field….,
thank you….
Thanks Surya. The only thing that you need to do is look opportunities in market based on what you’ve learnt and try to improvise on it. That way, you will constantly learn and evolve 🙂
Good luck.
Hi karthik, my question is that there is a freeze order on nifty lots to buy at once, but when it comes to algo there is no such limit & algo traders take advantage of it and cause freak trades by doing spoofing, why isn’t there any limits in algo ?
Not true, Sabu. Freeze qty cannot be breached by anyone – retail or algo. The only possibility is them placing multiple orders via iceberg or custom algos, but freeze qty remains the same.
Thank you very much for replying karthik. Actually 3 months back when a freak trade happened in bank nifty, the reason most people agreed on was that placing large orders through algo to do spoofing was the main reason. Also jp morgan was charged few years back for spoofing, that’s why i wanted to know that how come wall street and nse are unaware of this that it’s so easy to manipulate a strike ?? Just place large orders, cancel them & boom there you go
Ah, no..regulations are the same for all 🙂
But what can cause something like this is a large market order, which most of the institutions wont place I guess.
Karthik the current open interest for monthly 22000 strike is 57,308. Do it means that that many lots are being traded of this strike or is it 57308 ÷ 50 = 1146 lots traded ? Also if only 1146 lots are being traded then will it be a problem for a trader who wants to buy 1 or 2 thousand lots of this strike through iceberg order & then square them off the same day ?
Ah no, 57,308 is the number of lots traded.
Sir, I was just exploring Streak. It says that it is free for Zerodha users. But I don’t know as to what extent it is free. I would like to back test strategies like Iron Condors and spreads. Can I do the same with the free version, and if not could you suggest any other method?
The entire platform is free, but I’m not sure if you can backtest strategies like IC on streak. Please do check with them once.
Because in spread strategy we take two sides of a coin and hence there is no need to take delivery of stocks as it is nullified
Yes, thats there. If two opposing positions are ITM, then they nullify each other.
Just received a mail from the Streak team Sir. Seems like they have a seperate pro version for Streak which is a paid version and that is where we can test option strategies in expired contacts. I guess it also comes with algo benefits. In the free version, we can do strategies for cash market like based on MA, volume breakout etc and has a free scanner.
So could you suggest any other method to backtest option strategies? I don’t know coding sir.
Sathish, not sure about any other platforms. Maybe you can ask for a demo of how the platform works and see it makes sense before you subscribe 🙂
Got it Sir. If you could share a good trailing stop loss method, it would be helpful. Can we do this based on a specific MA in a shorter timeframe or if you could be specific about a certain method you use, it would provide value. Thanks.
One common way is to simply move the SL by 0.5% as and when the underlying moves in your favor by 2%. But note, this also depends on the stock in consideration and the momentum its exhibiting. If there is a lot of momentum, this may as well be 1% and 5%.
Sir,
I have 50000 rupees of capital in my account, if I make a basket order of short iron condor , the margin showing in sensibull is 39000 Rs for fin-nifty expiry and Funds required is showing 44000 rs approx.
I have some questions
1) if I take this strategy for intraday expiry and don’t close the position. Will I be charged penalty ? and are there any issues if I square off the trade early as my capital is limited and very close to the fund required ?
2) What are the tail-risks of taking this strategy in intraday ?
1) No, there is no issue if you close this prior to expiry.
2) This is a fairly hedged position, but one thing you need to keep an eye on is the extreme volatility movements after you initiate the trade.
Sir,
I built this strategy on sensibull after learning this :-
https://sbull.co/s/WRgGl6pr/
Please have a look on it :- 🙂
Are you ok with the risk reward skew?
No, the risk to reward is not okay but if I see the probability it is 74%. And the neutral option strategies don’t have a good risk to reward but 90% of the time nifty moves in sideways.
Sure, the best way to see what works is by actually executing it and figuring if it works for you 🙂
But do easy and don’t deploy a lot of capital straightaway.
Why options trading is such a negative thing in trading? In television, YouTube there is so much negativity, everyone saying it is dangerous.
🙂 Are people trying to get rich overnight or they are gambling , because if I use spread strategies, the risk and reward is limited. And if I do it consistently in the long run, I will get the compound effect .
Its just that options trading involves a lot of understanding on nuances, but that hardly anyone does. Half hearted attempt to learn options often leads to disastrous outcomes.
Sir, strikes of far OTM are blocked by exchanges, which makes building strategy difficult. How to buy far OTM?
Please suggest.
thanks!
They are not blocked by exchanges, but rather the broker would have hit OI limitations. One way is to sell OTMs first and then buy the strike you need. I know its margin intensive, but thats how you can 🙂
Sir,
I am currently testing iron condor strategy through sensibull’s virtual trading for last 20 days.and I have been profitable there with a capital of 59000rs.
My setup is selling 200 points below and above ATM at 10:00am.
With a hedge of 50 points below and above otm that I sold.
My question is I recently looked into one YouTube video that more than 20000 crores of straddles is being sold in the markets during expiry . That’s why massive spikes are happening in expiry (also known as injection candles) in 1 minute the option prices going tremendously up and coming down without much change in price of the underlying. My question is that before deploying real money to this strategy, I am really very worried about this massive spikes. What can I do sir , should I deploy real money to this strategy or stick to positional trading ? I spend a lot of time learning about options from varsity but this spikes are not making me confident to put real money here. 🙂
There is no way in the world anyone can say that there are x amount of a certain strategy being sold or bought in the market. If someone on Youtube is saying that then that person is an idiot, so please unsubscribe from that channel 🙂
🙂I got fooled by randomness.
We all do, but important to figure and get moving 🙂
dear karthik sir, we have been learning a lot about finance with help of zerodha varsity. we have a discussion meeting every saturday where we discuss the knowledge about finance and varsity comprises 98% of our discussion. so you can imagine how much helpful it is for us. thank you so much. wish you all good health and good wealth. thanks. dr devendra agrawal
Thanks so much for letting me know 🙂
If there anything we can do to make these Saturday sessions better?
it would be our pleasure to get your help in our learning curve. we all are very excited with your positive response. thanks.
Thanks! Will be happy to help 🙂
Sir,
Last month , I taken my first option spread trade . I had a capital of 43k , the margin required for the spread order was 40k. The strategy was iron butterfly, I applied the strategy in fin nifty index . After 3 hours of placing the order, I got a margin call from zerodha, I got scared and immediately exited my position made a loss of 1000 Rs.
This was the message:-
“EQUITY margin utilization for LGE648 has reached 294.89% of available balance. Add funds immediately on https://zrd.sh/funds. Positions can be squared off if margins are insufficient. Team Zerodha”
But the m2m was – 1000 Rs , I had excess margin of 3k in my account in cash. Also there was no negative balance in my trading account after receiving margin call.
Then I learned about margin penalty and peak margin shortfall from zerodha support team. But sir, if I have a 50k capital and I have 10% excess margin in my trading account , will it be risky to test my knowledge and take trade with option spreads like iron butterfly , iron condor , bull call and bear call spread. I will be trading single lot only with spreads. I am currently testing it through sensibull’s virtual trading , but when it comes to real market , the scene is very different.🙂
My questions:-
1) As a beginner trader, What are the things to keep in mind to avoid margin call and margin penalty ? How much excess margin we can have before taking a trade ? if iron butterfly strategy’s margin required is 42k , should we keep 150k margin in our trading account to avoid the margin call and margin penalty ?
2) A 4 legged spread order, there is 2 sell and 2 buy order. so every sell order requires a margin of at least 1 lac each , so for 2 sell orders the absolute margin required is 2 lac , so if we buy 2 buy hedges , the margin reduced to 50k , so will we have to keep 2 lac in our trading account to take a option spread trade that costs 50k?
3) If I receive margin call everyday, what are the side effects of it in trading ?
4) In 4 legged spread order, the position is itself hedged, so if there is a gamma spike happens on expiry on my sell position , should the hedge save me from that spike or for safety I have to place a stoploss limit order on sell orders ?
🙂 A lot of this questions occurred in my mind after making a loss 🙂
1) Usually having some more capital as margin will help avoid such situations. Given peak margin requirements, there is no specific percentage I can give you, but something like 10-15% additional capital is not a bad deal.
2) But you do get a margin benefit here, right?
3) No side effects, except that its annoying 🙂
4) It should.
By the way, I do get your point that real trading is very different from virtual. However, here is my suggestion – instead of fin nifty, why not do this on USDINR? Margins are lot lesser and it gives you the real market feel 🙂
Thank you for your suggestion,
I will try it after learning chapter 8 (Currency, Commodity, and Government Securities) on varsity 🙂 and
Another question :-
If we look at the open interest data ,
let’s take an example :-
Fin nifty is trading at 21170
The call OI of 21200 CE is higher than any strike on expiry.
The put OI of 21150 PE is higher than any strike on expiry.
and open interest signifies the buying and selling is happening very high on that strike prices.
Someone is buying and Someone is selling.
But can we assume that the power of sellers is more here , because option selling requires bigger margin and big institutions have that. and statistically , the winning probability of option selling is high in trading.
So fin-nifty will expire in between 21150 and 21200 , today I have experimented this theory with a trade and it was successful. 🙂
But looks like currency derivatives may no longer be available for retail. Its a developing story, need to see how regulations play out.
Yes, you can move with that assumption, but dont bet heavy on it. Realist is that no one really knows what the full position is, for all you know a sell on a certain strike could be hedged with a buy on a certain other strike.
I trade with 1 lot only as a beginner for learning and testing. 🙂 As currency derivatives no longer available for retail , the lot size of nifty is reduced to 25. 🙂
Dear karthik, Kindly update PDF to include last chapter also in the main page. Currently Iron Condor is not selected.
Ah, sure. We will do that. Thanks.
Karthik Rangappa says:
March 30, 2024 at 7:39 am
Thanks! Will be happy to help 🙂
DEAR KARTHIK SIR, HOW CAN WE COMMUNICATE WITH YOU. PLEASE GUIDE US. THANKS AND REGARDS
This is the best channel to communicate with me 🙂
Could you please explain how to do adjustment, if I do short straddle monthly expiry and also do strangle with weekly expiry for margin benifit… What will happen after the weekly expiry…
I’d suggest you key in these positions on Sensibull to see how the margins are offset.
when will you be discussing about delta hedging and volatility arbitrage (the topics you mentioned to discuss at the start of this module)
Note sure, maybe I’ll do a video 🙂
sir please suggest some technical,options,and trading Psychology books
and please suggest some at least 10 books which you like please sir
Everything you’d need is mostly on Varsity. I’s suggest you give it a read first and then look for other sources.
sir from last one year i read varsity first 6 modules for 5to6 times and other modules for 2 time and i trading from last 2 year and i want to get some more knowledge about trading that’s why i asking you for suggesting some books please suggest some books sir
Which direction do you want go? If its investing the I can think of few books related to investing, if its quants then i can suggest a few in that direction.
Sir something about technical analysis,
trading psychology and options trading
For TA – please check CMT resources, you will find all that you need there. For options trading, check this book called Options Pricing by Sheldon Natenberg. Good luck 🙂
Sir quants means quantitative analysis?
Yes, thats right.
thank you sir
Welcome!
Are options based on futures price or spot price? Why sensibull option chain shows 23250 strike as ATM option when the Nifty spot is trading at 23008 and Nifty futures at 23262?
Its technically based on spot, but futures is fine too.
Hi Karthik
When i check the iron condor for today on Sensibull using its strategy builder, I find that the equations of max profit and max loss do not hold. Pls help with why this is so.
Sharing the values below since I cant paste any image here.
Expiry: 6th Jun
Spot- 23000 NIFTY
Short 22800 PE and 23200 CE (premiums are 300 and 342)
Long 23700 PE and 23300 CE (premiums are 273 and 292)
all 1 lots each
Net credit- 77
max loss should be spread-net credit= 100-77=23; so 23*75= 1725 but in Sensibull it says max loss is 569
Max prof shuld be net credit=77 so 77*75= 5775 but in Sensibull it says ma profit is 1931.
Am i missing something here?
Sensibull takes in Future prices, are you considering Nifty Spot?
Hi,
Can someone please tell me where can i donwload historical option data for stocks and indices? for last 2-3 years?
Thanks in advance
Ah, not sure if this is available. You can check once with Sensibull though.
Can this strategy also be used in short straddle?
Hmm, but thats a different strategy right? Its 2 legged, and this one is 4 legged.
I mean, this strategy is to cap the losses right? then what about short straddle since it has maximum losses too?
Yes, since both the legs are short positions.
how different options strategies utilize the Greeks? how are they incorporated into the decision-making. And many times I have seen strategies specific to a particular greek like gamma or Vega what are those strategies and how do they work out.
Check this – https://zerodha.com/varsity/chapter/greek-interactions/
Hi kartik !!!
Currently I trade via option selling with monthly expiry contracts.So, assume I sell 2 lot call option and 2 lot put option with 0.2 delta each for october end expiry on 1st october.
Currently I’m required to keep around 1.2 lakh as margin with broker.
So my doubt is under new f&O rules released on 1st october, 2024 , how much margin will I be required to keep with broker ?
This wont really change. What changed is the calendar spread on expiry day.
But there is one more change about lot size and contract value which says minimum contract value has been increased from 5-10 lakh to 15-20 lakhs which as a result will increase lot sizes from 25 (of nifty) to around 60.
I’m really unable to understand this new rule.
Is this new rule of change in contract size going to increase my margin requirement ?
Yes, with the increase in lot size, contract value changes, and therefore your margin requirement.
So if lot size of nifty is increased to 50
then will my margin requirement get doubled ?
Yes, it will. Higher the contract value, higher the margin required.
Hi Karthik,
Thank you for the great explanation, I have a following question:
In the Iron Condor strategy, I’ve observed that there is a trade-off between achieving a good range and maintaining a favourable risk-reward ratio (RRR). For instance, with a probability of profit (POP) of 70% and a RRR of 3:1, theoretically, over 100 trades, I would win 70 times, earning 70 units, but lose 30 times, resulting in a loss of 90 units (30 x 3). This would lead to a net loss of 20 units after 100 trades. Given that this is a delta-neutral strategy and I have no directional bias, how can this strategy be profitable? Are adjustments the key to making this strategy work effectively?
Note: The RRR and POP numbers are taken for example.
But why would you want to even up take up a trade that does not have a favorable RRR?
Thanks for the response Karthik.
If I am trying to improve the RRR i.e. let’s say close to 1:1, I start to see POP less than 50%, which also essentially means If I execute 100 such trades, I will eventually lose money.
Let me know if I am missing out something.
TIA
Thats right, why not optimize it for a higher RRR? Even a small increase may lead to a positive outcome.
Sir,
In options strategy builder, if the max loss is more than the max profit, it has a higher probability of making a profit. But when the max profit is more than the max loss, then the probability of making profit is drastically low.
So there is a only one option strategy that is iron fly which comes with good risk to reward
we sell a straddle and buy 200+ ATM hedges, but comes with 28% probability of profit.
In case of iron condor:-
we sell a strangle(200+ ATM) and buy (400+ ATM) hedges , it comes with a 55% probability of profit, but the max loss is more than the max profit. the reward is lower than the risk we are taking.
Q1) Then as a trader, what option is favorable?
Q2) Theoretically, shorting naked options come with unlimited risk and higher probability of profit. But is the “unlimited risk” practical in real world? Because I haven’t experienced a black swan event in my life.