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Everything about Max P&L and ROI and Logistics

  1. Learn about Option Strategies
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    10. Arbitrage options trading strategy with Examples from Fish Market to Share Market
    11. Bear Put Spread Navigating Bearish Markets to Limit Losses
    12. Bear Call Spread Why Calls can be a Better Choice than Puts
    13. Put Ratio Back Spread Options Trading Strategy to Profit from a Bearish Market
    14. Advanced Options Trading Strategies: Generalization, Delta, Strike Selection, and Effect of Volatility
    15. Long Straddle Options Trading Strategy Maximizing Profits in Any Market Direction
    16. Straddle Options Strategy Understanding Volatility and Overcoming Potential Risks
    17. Short Straddle Options Trading Strategy with examples
    18. Strangle vs Straddle: Which Options Trading Strategy is Better
    19. Long Strangles vs Short Strangles: Which Options Trading Strategy is Right for You
    20. Max Pain how to use options strategy With Examples
    21. Put Call Ratio (PCR) Analysis: How to Identify Bullish or Bearish Trends in the Market
    22. Iron Condor How to use Options Strategy With examples
    23. Everything about Max P&L and ROI and Logistics
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Marketopedia / Learn about Option Strategies / Everything about Max P&L and ROI and Logistics

There are a few important things you need to remember while executing an iron condor –

  1. It is essential for the strike distribution to be even when purchasing PE and CE. In this case, 9800 PE and 10,100 CE have been sold with the protection of 9600 PE and 10,300 CE respectively. The difference between them must be equal – 200 in this instance – rather than one being 100 and the other 200.
  2. The Max loss occurs when the market moves either above 10,300 CE or below 9,600 PE.
  3. Spread = 200 i.e. the difference between the sold strike and its protective strike.
  4. Max Profit = Net premium received. In this case, it is 128.45 (9634/75)
  5. Max loss = Spread – Net premium received. In this case, it is 200 – 128.45 = 71.54.

 

  • ROI and Logistics

The premium of Rs.23,288/- you receive by establishing a short strangle is higher in terms of absolute Rupees than the Rs.9,643/- for an iron condor. However, when factoring in the margin requirement, the Iron condor has a higher return on investment.

The margin required for a short strangle trade is Rs.1,45,090/-, resulting in an ROI.

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, focus on the ROI rather than absolute numbers. The margin benefit makes for a tangible difference.

The order of trading plays a crucial role when it comes to an iron condor. To illustrate, this is the process –

  • Buy the far OTM call option
  • Buy the far OTM PUT

The idea here is to first be in a long position before starting a short one.

Why? Having a long option position reduces the margin you must pay for a short option. The system recognizes that risk is minimised, so lower margins are required.

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