What is the iron condor options strategy? This is a trade that makes profit when the underlying market being used is range bound. Typically, it goes without saying, options traders are trying to leverage market movement. But often their contracts expire worthless because there's no significant movement at all. These types of trading range markets are ideally suited for the iron condor option trading strategy.
The iron condor trade is simply a short strangle sold on an underlying with another long strangle (where the strike prices are placed further out). 'Strangles' can be both bought and sold and it is a trade where both a put and a call option is purchased some distance away from where the underlying is trading at. When you sell a straddle - quite a bit of premium credit can be brought into the account as you are selling options that are right 'at the money' - opposed to when you sell a strangle the premiums are quite less since you are selling options that are farther away. A different way to imagine the iron condor option trading strategy is to think of it as 2 credit spreads - a bull put spread and a bear call spread. Your paired positions are the condor's wings.
Say that the SPX is at 1290 and you purchase the July call option at 1360 bringing in a credit of two hundred fifty, and at the same time you buy a put option for five dollars. Assuming that you've selected an options-friendly broker, all that you'll need for your required maintenance margin is an amount of assets or cash to cover the strike prices' difference less the premium credit. In our imaginary scenario you'll need $1,300 for this spread.
This is what it would look like:
Thirteen hundred eighty at about two hundred forty five.
Thirteen hundred fifty five at four dollars and fifty cents.
That's around a credit premium that has been brought in of around two dollars or so.
($15 - $2 = $13) x 1 spread x 100 units = $1,300
Now, if the stock being used in this example closes below where the short options were sold - a great return can be made as the trader can keep the entire premium credit that was brought in at the start of the trade.
This is the call side spread of the iron condor trade we are referring to. To finish off the iron condor completely, you would need to add another credit spread - a put credit spread - down below.
The iron condor options strategy works beautifully when you know what you're doing and there are options traders who use it almost exclusively. But just like any investment strategy - there are potential pitfalls one needs to be aware of.
You need to not only understand the iron condor very well - you also need to know how and when to enter, adjust, and properly manage the trade - along with how to pick the correct underlying to use. Managing and adjusting these trades are a major part of experiencing success with this type of trading. It is possible that this trade can produce big time losses if you don't take the time to completely learn and understand this trade and if you don't create a trading plan that you are willing to follow. Ask me how I know!
The iron condor trade is simply a short strangle sold on an underlying with another long strangle (where the strike prices are placed further out). 'Strangles' can be both bought and sold and it is a trade where both a put and a call option is purchased some distance away from where the underlying is trading at. When you sell a straddle - quite a bit of premium credit can be brought into the account as you are selling options that are right 'at the money' - opposed to when you sell a strangle the premiums are quite less since you are selling options that are farther away. A different way to imagine the iron condor option trading strategy is to think of it as 2 credit spreads - a bull put spread and a bear call spread. Your paired positions are the condor's wings.
Say that the SPX is at 1290 and you purchase the July call option at 1360 bringing in a credit of two hundred fifty, and at the same time you buy a put option for five dollars. Assuming that you've selected an options-friendly broker, all that you'll need for your required maintenance margin is an amount of assets or cash to cover the strike prices' difference less the premium credit. In our imaginary scenario you'll need $1,300 for this spread.
This is what it would look like:
Thirteen hundred eighty at about two hundred forty five.
Thirteen hundred fifty five at four dollars and fifty cents.
That's around a credit premium that has been brought in of around two dollars or so.
($15 - $2 = $13) x 1 spread x 100 units = $1,300
Now, if the stock being used in this example closes below where the short options were sold - a great return can be made as the trader can keep the entire premium credit that was brought in at the start of the trade.
This is the call side spread of the iron condor trade we are referring to. To finish off the iron condor completely, you would need to add another credit spread - a put credit spread - down below.
The iron condor options strategy works beautifully when you know what you're doing and there are options traders who use it almost exclusively. But just like any investment strategy - there are potential pitfalls one needs to be aware of.
You need to not only understand the iron condor very well - you also need to know how and when to enter, adjust, and properly manage the trade - along with how to pick the correct underlying to use. Managing and adjusting these trades are a major part of experiencing success with this type of trading. It is possible that this trade can produce big time losses if you don't take the time to completely learn and understand this trade and if you don't create a trading plan that you are willing to follow. Ask me how I know!
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