Short iron condor strategy in an advanced option trading strategy that combines of option buying and option selling. This strategy needs to be used in underlying which is low volatile and be in a specific range within expiry contract.
This strategy comes with limited profit and limited loss. How the short iron condor strategy works:
1. Identify a suitable underlying asset:
Choosing of an asset that will be low volatile for short period of time. You can select index or stock that has option trading available.
2. Select strike price and expiry date:
Choose same contract expiry date. Buying of CE and Pe option, selling of call and put option is involved. Strike needs to be selling near OTM and ITM strike and buying far OTM CE and PE strike. Your risk is involved is less because you have bought CE and Pe option which is a hedge to the selling position.
3. How to execute this strategy:
If you have the margin which only meet the requirement of iron condor strategy and you don’t have the huge surplus amount then first you need to buy the CE and Put option then go for selling of option. 4. Manage risk and protentional profit: The maximum profit is the net selling amount from the option which is limited profit and maximum loss is the width between the strike price of the long and short position mins the credit received. Any trader can choose to exit as per the target or can exit the trade is not going as expected.
The short iron condor strategy aims to generate profit through the premium collected from selling the options. However, it's important to note that this strategy has limited profit potential and carries potential risks if the underlying asset moves significantly beyond the range of the short options.
Rule Based Trading:
In short iron condor strategy you can apply an rules-based trading system which will be having a fixed rule of entry time, exit time and stop loss. Rule is pretty simple. · Entry Time: 9:20 · Exit Time: 3:15 · Stop Loss: 50% on premium only on option selling · Strike price: 1st ITM in selling CE and PE and 5th OTM buying CE and PE. · No stop loss for Option buying but exit option buying only by 3:15. Follow this rule for consistently for 3 month you will be able to see the result. How this strategy will give you profit and loss: · Market is in a range · Market moves significantly one side you can be in profit. Market reverses after your stop loss hit then you will be in loss. · Market hits both sides stop loss you will be in loss.
Short iron condor strategy is an hedging strategy with limited profit and limited loss, identify a underlying which is less volatile and have a range and according to that you can implement the strategy.
All you need to have a strategy which really works in the market by which you can generate a consistent income from short iron condor strategy with an rule based strategy as well. Make sure you learn before implementing the strategy..