Easiest Way To Enter An Iron Condor Trade | Option Greek Delta

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Previously, we learned how to enter an Iron Condor trade using the ATM Straddle method and India Vix method but is there a way to enter the trade in a simpler manner, without needing to do any of these calculations. To know the answer keep watching the video.
How to enter an Options trade using the option greek, Delta?
But what is Delta?
Delta is one of the option greeks (the other being Gamma, Vega, Theta and Rho). But let's limit the scope of this video to Delta. It measures how much the price of an option is expected to change per one unit change in the price of the underlying security or index.
For example, a Delta of 0.50 means that the option’s price will theoretically move 0.50 for every 1 unit move in the price of the underlying security or index.
Example:
Let's look at an example to understand this better.
Say the spot price of Nifty is 9300 and the premium of the at the money 9300 Call (April 30 expiry) option is 235. Assuming the Delta of the ATM Call option is 0.50 if Nifty moves to 9400 the premium of the Call option would then be 235 + (0.5 x 100), that is, 285. This is assuming the other factors that determine the price of the options remain constant.
Delta is, however, not constant and keeps changing over a period of time. It depends on various factors such as volatility, interest rates and time to expiration.
The delta of an option ranges in value from 0 to 1 for calls (0 to -1 for puts). Far OTM options have delta values close to 0 while deep ITM options have deltas that are close to 1. ATM options have delta values between 0.45 and 0.55.
Another way to look at Delta is that it provides a probability estimate of the likelihood that the option will be in the money by expiration. That is, a Delta of 0.2 means the likelihood that the option will be ITM by expiration is 20%. Now let’s see how we can use this important aspect of Delta to our benefit in our Option strategies, especially Iron Condors and Strangles.
Although there are some tools available to calculate the Greeks such as Black and Scholes Options calculator we will show an easier way to get the values. Please download the Edelweiss Mobile Trader App from the App Store and open it. Go to the Derivative section in Watch Markets and then click on Option Chain. You can then select an expiry date from the dropdown menu on the right. Enable Show Greeks and you would get to see the Greeks associated with each strike price. Scroll further down and you would see a visual Option Chain where you can find at which strike price the maximum open interest is concentrated at.
Now let’s go through the process again and determine which strike price has a delta value of 0.2 for the April 30 series so that we can go ahead with our options trade. Not all strike prices are shown on the first screen so let’s scroll down and click on Show All. A closer look at the Call options on the left would reveal that the 9800 strike price has a delta value of 0.19 and similarly a look at the Put options on the right would reveal that the 8700 strike price has a delta value of 0.19.
Now that we have determined the options that have a delta of 0.2 let’s see how we can deploy an Iron Condor trade using these values:
The probability of profit at expiry for this trade is about 65% and the breakeven points are at 8629, 9871. You can learn how these values are determined from our video on Iron Condor, a link to which is provided in the description. Enter this trade at your own risk. This is not a recommendation.
Another useful option in the Edelweiss Mobile Trader App is the Option Calculator in which you can find the theoretical option prices of the ATM Call and Put options and also their greek values. There is also a Do It Yourself tab where you can calculate the value of a particular option at a particular target price and a target date. For example let’s calculate the value of the Nifty 23rd April 9200 strike price option at a target price of 10000 and a target date of expiry. The answer turns out to be 800 for the Call option and 0 for the Put option which is on the expected lines.
Thank you for watching!
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