There are a few important things you need to remember while executing an iron condor –
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.
The margin requirement for iron condor is Rs.44,303/-. Therefore, the ROI is –
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 –
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.