Indian Options trading has grown exponentially over the past few years, and it is now counted among the top 10 equity markets in the world. With a share of $1.8 billion, Indian equities are expected to grow further and become one of the biggest equity markets to trade as well as research.
What is an Iron Condor?
Iron Condor options trading is a low-risk strategy that traders can use to earn a steady income with limited downside. The basic idea of this strategy is to have two credit spreads, one for the Call Options and another for Put Options. If the price of the underlying stays between these two credit spreads, it will result in profit. This simple strategy has attracted many investors looking for steady profits without having huge risks involved.
Benefits of using an Iron Condor
There are several benefits of using an Iron Condor in Indian options trading:
The first benefit of using Iron Condors in Indian Options Trading is Low risk. The odds are very much against us when we go long on standard call or put option contracts, so being successful at options trading takes a high degree of competence and knowledge to succeed consistently over time. This calls for intelligent strategies that reduce risks and provide adequate returns. Iron Condors are one such option.
The second benefit of using Iron Condor in Indian Options Trading is the lower cost. Compared to standard options trading strategies that directly involve buying or selling call or put options, the iron condor strategy reduces costs by almost half while providing similar income opportunities. It can help traders immediately generate more profits without increasing bet size or adding additional risk.
The third benefit of using this strategy is stability. Since trades are opened at four different strike prices with two contracts for each, there is always a greater chance of being profitable as long as the price falls between the strikes, with an upward trend being better than a downward trend for this trade set up.
The fourth and final benefit of using Iron Condor in Indian Options Trading is the steady income. This strategy does not suffer any losses unless the underlying price goes beyond the outer strikes, in which case the trader closes the position. Since this strategy has four different strike prices in place, it increases the chances of getting into good profits even if one or two positions fail to generate immediate returns.
The risks of using Iron Condors in Indian Options trading
Options traders often seek to use an Iron Condor strategy to bet against price movement. The idea is that they will do well if there is no or minimal movement, and their trade can be exited early without any loss. In a sense, this makes sense because the returns would be higher – if the underlying stays within a range throughout expiry time.
However, those who have been practicing the Iron Condor strategy for a while know how the option seller makes a profit. They sell options with a premium close to the mid-price of the underlying. This premium widens as expiry time nears because the underlying probability will move in either direction increases.
Therefore, those who use Iron Condor strategies should be aware that their win rate might decrease if they use Indian Options. The probability distributions used for pricing these options are different from those used for stocks. This means that whereas it may have been possible to make a trade with an 80% chance of success in stock trading, there is only a 50% chance of success when trading Indian Options.
Given these benefits, traders can see that using Iron Condors in their option trading strategies may help them find more success at consistent profitability over time. Also, be aware that people have been seen losing money faster than usual when applying the Iron Condor strategy to Indian Options. New investors interested in options trading India are advised to use a reputable online broker from Saxo Bank and trade on a demo account before investing real money.