The pay off for this short strangle set up is as follows – Since both the options are written/sold, I get to collect a total premium of 164.25+145.25 = 309.5.įor those of you not familiar with the strangles, I’d suggest you read through this chapter. As you can see, Nifty is at 9972.9, and I’m trying to set up a short strangle by shorting OTM calls and puts – I’ve taken this snapshot from Sensibull’s Strategy Builder. The iron condor is an improvisation over the short strangle. The iron condor is a four-legged option setup. So given this, I want to discuss one more options strategy in this module, I had not discussed it earlier since the margin requirement was very high, but now, it’s no longer the case. Well, some of the useful strategies, which looked great on paper but were prohibitive to implement due to excessive margin requirement, now look enticing.Ī trick question for you here – why do you think the margin reduction is higher for spread position compared to a neutral market position?.ĭo think about it and post your response in the comment section. What does this mean to you as an options trader?
#Condor 2 crack crack#
The presentation is quite technical you do not have to crack your head to understand this unless you really want to.įrom a trader’s point of view, there are three key takeaways from the new margin policy all the three highlighted in 1 slide of this presentation, here is a snapshot – You can check this presentation by NSE for more details. In essence, NSE has proposed the same in the new margin framework. Therefore, this means whenever you initiate a hedged strategy, the margins blocked by your broker is less compared to the margin required for a naked position. Higher the risk, higher the margin requirement.
Remember, the critical margin dynamics – the lesser the risk you carry, the lower the margin requirement. So what does this mean to you as a trader? Now, think about this – if your capital loss is minimal, then it implies that the risk for your broker is also minimum right? Now, if the risk for the broker reduces, it also means the risk for the exchange reduces. However, if you hedge your position, then the risk of losing capital reduces drastically. The risk of market-moving against your position, causing capital erosion is high. In the same way, a naked futures or options position in the market is like riding a bike without wearing a helmet.
The helmet acts as a hedge against a potential disaster. Given the crash, what is the probability of injuring your head? Low probability, right? Because the helmet protects you from an injury. Now imagine the same situation, but instead of being carefree, you decide to wear a helmet. What is the probability of injuring your head? Quite high given the fact that you are not wearing a helmet. Suddenly you come across a pothole, you slam the breaks to cut speed, but it’s too late, you crash and fall. What is a hedged position you may ask? Well, we have discussed this several times in this module, but for the sake of completeness of this chapter, we will quickly discuss this again.Īssume you are riding a bike at 75Kms per hour, without wearing a helmet. Starting 1 st June 2020, NSE’s new margin framework is live, which essentially brings down the margin requirement for the hedged position. These are fascinating times we are living in, especially if you are an options trader in India 🙂
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