Monthly Iron Condor Strategy & Adjustments | Monthly Income Strategy On Nifty

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Nifty is at 10,901.70 on July 17th, 2020. A monthly Iron Condor position can then be entered as follows:

Sell three lots of 27th August 11800 strike price Call at 32.1
Buy three lots of 27th August 12100 strike price Call at 20
Sell three lots of 27th August 10000 strike price Put at 77.4
Buy three lots of 27th August 9700 strike price Put at 47

Note that the 11800 strike price Call has a delta of 0.1. The width of the bull and bear spreads are 300 points and they are equidistant from the spot price.

Adjustments:

Iron Condor is a risk-defined strategy unlike the short strangle. But a good trader would always want to cut the loss on a losing trade with a technique that would not add more risk than that is already existing and exit the trade when a certain percentage of the profit target, usually about 60-65%, has been met.

Now let’s learn what is a tested side? The tested side is the side closest to being ITM. The untested side is the side furthest OTM.

Say, about one week into the trade, Nifty dropped to 10700.

The first adjustment would be to cut the number of lots from 3 to 2 on the tested side.

Buy one lot of 27th August 10000 strike price Put
Sell one lot of 27th August 9700 strike price Put

The said adjustment would reduce the risk on the tested side and it would also reduce the reward.

The second adjustment would be to add a bear put spread to the tested side.

Buy one lot of 27th August 10300 strike price Put
Sell one lot of 27th August 10200 strike price Put

The said adjustment not only reduces the risk on the tested side but also creates an elevated profit zone where you could make more profit just before the break even point. This is the adjustment that is preferred by most professional traders.

The third adjustment would be to add an OTM put to the tested side.

Buy one lot of 27th August 9400 strike price Put

The said adjustment not only reduces the risk on the tested side but also can potentially make you a big profit if Nifty continues to fall. Go for this adjustment only when you spot a big bearish candle such as the Bearish Engulfing candle on the daily timeframe.


The fourth adjustment would be to roll down the tested side.

Buy three lots of 27th August 9400 strike price Put
Sell six lots of 27th August 9700 strike price Put
Buy three lots of 27th August 10000 strike price Put

The said adjustment would widen the profit zone but increases the risk on the tested side. It would also reduce the reward. Go for this adjustment only if your forecast says that the price would recover or fall slightly in the days to come.

The fifth adjustment would be to roll down the untested side.

Sell three lots of 27th August 11200 strike price Call
Buy three lots of 27th August 11500 strike price Call
Buy three lots of 27th August 11800 strike price Call
Sell three lots of 27th August 12100 strike price Call

The said adjustment would narrow the profit zone but reduces the risk on the tested side. It would also increase the reward. Go for this adjustment only if your forecast says that the price would remain range bound or fall or rise slightly in the days to come.

The sixth adjustment would be to add a long butterfly spread to the tested side.

Buy one lot of 27th August 10100 strike price Put
Sell two lots of 27th August 10200 strike price Put
Buy one lot of 27th August 10300 strike price Put

The said adjustment not only reduces the risk on the tested side (if the long butterfly is initiated for a credit) but also creates an elevated profit zone where you could make more profit just before the break even point. Go for this adjustment only if your forecast says that the price would go down only slightly in the days to come.

The seventh adjustment would be to add a long broken wing butterfly spread to the tested side.

Buy one lot of 27th August 10100 strike price Put
Sell two lots of 27th August 10200 strike price Put
Buy one lot of 27th August 10400 strike price Put

Note that the long strikes are not equidistant from the short strike which makes the butterfly slightly bearish.

The said adjustment not only reduces the risk on the tested side but also creates an elevated profit zone where you could make more profit just before the break even point. Go for this adjustment only if your forecast says that the price would go down only slightly in the days to come.

Let us know in the comments section which adjustment according to you would suit the Iron Condor strategy better.