F&O Radar | Deploy Short Iron Condor for potential gains from sideways market

Indian stock markets showed signs of recovery last week, with the broader indices bouncing in Friday’s session to end the week on a positive note. However, bearish sentiment emerged from alleged fraudulent activities involving the Adani Group, and the negative flow of the FII in the cash segment with second-quarter corporate profits fell short of expectations.

Last week, the sectors that ended in the green were realty, auto and consumer durables. In contrast, the media and financial services sectors ended the week in the red.

In the derivatives market, the highest call open interest in Nifty was seen at strikes 24,000 and 23,900 while notable put open interest was seen at strikes 23,500 and 23,400. For Bank Nifty, the prominent call open interest was seen at the 52,000 and 51,500 strikes, whereas notable put open interest at the 51,000.

Implied volatility (IV) on Nifty call options was 14.97% and on put options was 16.09%. India VIX, ended the week at 16.10 %. The Put-Call Open Interest Ratio (PCR OI) for the week was 1.15.

“From a technical perspective, Nifty is holding above the 200 EMA, which remains a critical support level. As long as the Nifty remains above this important moving average, there are chances of recovery or upside,” said Pranay Aggarwal, CEO of Stoxkart, a deep discount broker.

However, the fact that the Nifty is trading below the 100 EMA indicates short-term weakness which may lead to range or sideways trading in the coming days, he added.“The upcoming sessions fall in the last week of the month where we can see some rollovers. In other words, the market player adjusts their positions, so we can expect some sideways movement,” Aggarwal said.Nifty is likely to take support at 23,700 and 23,500 levels whereas resistance can be seen at 24,000 and 24,300 levels.

Short Iron Condor

The Iron Condor is an options strategy that involves four positions: buying a lower strike put, selling a mid-strike put, selling a slightly higher mid-strike call, and buying a higher strike call. All options have the same expiration. The goal is to benefit from low volatility while keeping the underlying asset within the range of the two strike prices sold. The largest gains occur when the asset closes at the sold put and call strike prices, while the largest losses occur when the price exceeds the outer strike price purchased. Provides a limited risk and reward.

(Prices as of November 22)

Below is the payoff graph of the strategy:

(Source: Stoxkart)

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