Mumbai: India’s benchmark indices are likely to remain in a narrow trading range for want of a definitive directional trigger.

To make money in such an environment, derivative analysts are advising their clients to utilise the so-called iron condor that allows traders to place four different bets on the same instrument. The iron condor, utilising both the put and call spreads and four different strikes, limits the loss risks to Rs 31 while promising gains of up to Rs 69 on each trade.

The strategy involves selling a straddle — call and put of the same strike — at 10,600 and buying a strangle — out of the money call (10,700) and put (10,500) to cap upside or downside risks if indices break out of the 200-point range, either side. Options contracts expiring April 28 clearly show that markets face resistance at 10,700 and have support at 10,500.

The 10,700 call has the highest open interest (OI) among calls at 51.11 lakh shares.

The 10,500 put has the highest put OI at 55.2 lakh shares. The Nifty closed up two-fifths of a percent at 10,565.3 Thursday.

That indicates movement in a more or less 200-point range from the current level. At Thursday’s provisional prices, selling the 10,600 straddle fetches the trader Rs 121 a share (75 shares equal one Nifty contract).

Buying the strangle involves the trader paying a combined Rs 52 a share.

This means the trader gets a credit of Rs 69 a share (121-52), ex-brokerage and taxes, at initiation.

That’s the maximum profit for the trader and accrues if the Nifty remains at 10,600.

The trader’s breakeven on the upper side is thus Rs 10669 (10,600+69). If the market moves anywhere beyond this point, the maximum loss faced is Rs 31 since the trader purchased a 10,700 call.

Say, the Nifty expires at 10,750, the payout to the straddle buyer is Rs 81 (10,750-10,669).

However, since the trader purchased a 10,700 call, he receives Rs 50.

That means the net loss faced is Rs 31 (81-50). Similarly, the lower breakeven point is 10,531 (10,600-69 inflow).

Say, the Nifty closes at 10,450 on expiry.

Here again the trader suffers a maximum loss of Rs 31 as the straddle seller will have to pay the straddle buyer Rs 81 (10,531-10,450).

However, since the straddle seller purchased a put (as part of the strangle) at 10,500, she receives Rs 50, reducing her net debit (to the straddle buyer) to Rs 31 (81-50). Since maximum profit is Rs 69 and loss Rs 31, the strategy’s risk-reward is 2.2:1. “Given the rangebound market we are in, that’s a fairly decent riskreward,” said Rajesh Palviya, derivatives head at Axis Securities.

He said he will be advising his clients to initiate the strategy. Chandan Taparia, derivatives analyst at Motilal Oswal Securities, said the iron condor aimed to capture the premium due to theta (time) decay amid a rangebound market.

“We have already asked clients to play the iron condor,” said Taparia. The strategy is called so as its profit loss graph resembles a condor, a large bird.