Introduction

I presume, by the safest strategy you mean that-

a) the strategy has a high win probability

b) the strategy is not open to unlimited loss

Many experienced traders here in this forum and outside, keep telling that, the only option sellers make money consistently. That is true, in fact. My answer is based upon the fact of option sellers make money.

The famous and most deployed option selling strategy is short strangled. But this answer gives a new dimension to the payoff of the graph. Please read on. Needless to say, this works well when the view of the market is range-bound.

Disclaimer: This article is for educational and information purposes only.

Short Strangle

A short strangle constructed on Thursday with 400/450 points away on either side from the current market price, on weekly Nifty, has a win probability of more than 70%.

But the market turns crazy sometimes and gives a violent directional move. To get protected from this, we go for an iron condor replacing short strangle. The shortcoming is that it reduces the reward amount by 5–6 times compared to short strangle.

The Stratergy

Let us make numbers talk to understand the actual PL.

Around 40,000Rs is required to deploy iron condor of 1 lot in Nifty. A win would give 1000Rs profit but if the trade goes wrong, it would incur 3000Rs loss. which means that just 1 loss out of 4, would wipe away the profits made in the other three weeks in a month. This carries a bad reward to risk ratio.

To overcome this we overlap Iron condor with Iron Butterfly. The butterfly strategy yields an amazing reward to risk ratio. For one lot, a winning trade could give max profit up to 4000Rs and loss would be just 300Rs – 400Rs.

This overlapped strategy balances the probability game perfectly.

Exmaple

Construct a short straddle with 400 points away from market price on either side. Hedge this by buying strikes at 450 points away from market price – hence it completes iron condor setup.
Create a straddle at max pain point or at strike having the highest sum OI of both CE and PE. Hedge this to make a butterfly, by buying immediate next/two-level strike from straddle point. This makes Iron Butterfly setup.
Eg:

Say Nifty is trading at 13250

Sell 12850 pe and 13650 CE.

Buy 12800 pe and 13700 pe.

This completes the iron condor setup.

Say max pain is at 13200.

Sell 13200 pe and 13200 CE.

Buy 13150/13100 pe and 13250/13300 CE.

This completes the Iron Butterfly Setup.

Pay off graph looks like this.

Conclusion

This is one of the simple strategies with a high win probability given to our clients regularly to make a consistent profit in weekly options. Hedged and safe strategy anybody can deploy to make regular money.

I am using Zerodha for the past 2 years and I am very comfortable using this. Zerodha offers many other platforms and learning as well. So it’s your time to invest.

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Here we conclude by wishing you happy trading or investing and wish your dreams come true. Be consistent and keep learning. Hustle is everything.

Thank you for your time.

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