F&O Radar| Deploy Long Iron Condor in Nifty for potential gains from range

Nifty has been consolidating since the day of RBI Monetary policy on 6th Dec 2024, the outcome of the policy seems to be already discounted in the market, hence the Index has gone sideways since last Friday.

The momentum indicator MACD is already in the buy mode on the daily as well as hourly charts on Nifty, hence the short-term trend is positive, however, the last 2 weekly expiries have been volatile and since the consolidation has already happened ahead of the expiry day so there is a higher probability of a breakout either side.

The last two weekly expiries had witnessed an increase in IVs, hence the premiums had shot up, however, in this weekly expiry the premiums are down relative to the last two expiries.


The IVs have fallen back to 12.5 levels from 15 odd levels and the IVR has fallen to 14.5 whereas the IVP stands at 35.2, so going forward this indicates that there will be a jump in both of these indicators which indicates that there will be one more leg of increase in volatility going ahead.

As far as the Options data is concerned, then 24,700 CE has the highest OI of almost 1.46 crore whereas on an immediate basis, 24,500 PE has almost the highest OI of 1.09 crore a bit lesser than 24,000 PE which has an OI of 1.10 crore.

Based on this, the range for the Index appears to be 24,500 to 24,700 levels, says Jay Thakkar, Head of Derivative and Quant Research at ICICI Securities.

A breakout from this range will lead to another 100 to 150 points move, believes Thakkar, suggesting deploying a Long Iron Condor Strategy in anticipation of a volatile day and a breakout from the range.

Long Iron Condor

A long iron condor is a popular options strategy used when an investor expects minimal price movement in the underlying asset (i.e., they believe the asset will stay within a certain range). It is a neutral, non-directional strategy designed to profit from low volatility.

It involves four option contracts: buying an out-of-the-money put, selling a closer-to-the-money put, selling an out-of-the-money call, and buying a further out-of-the-money call, all with the same expiration.

The strategy profits when the asset price stays within the range of the two sold options, with losses limited if the price moves outside the outer strike prices.

(Prices as of December 11)

Below is the payoff graph of the strategy:

(Source: ICICI Securities)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)