What are Iron Condors
So you’re probably wondering what are Iron Condors, how to trade Iron Condors, or are Iron Condors profitable?
When you work with me, I will teach you various strategies used for stock options trading, and specifically one of the ones used often when the market is sideways, which is called the Iron Condor.
An Iron Condor is a neutral direction position, with a defined risk strategy that profits from a stock trading in a range that doesn’t break up or down as the option contract expires.
It benefits from the passage of time and any decreases in implied volatility.
Investors and/or traders would setup an iron condor if the market is trading sideways for a specific period of time. Often it involves buying a call, selling a call, and then buying a put and selling a put. This creates a visual of a condor.
An Iron Condor is a neutral direction position, with a defined risk strategy that profits from a stock trading in a range that doesn’t break up or down as the option contract expires.
It benefits from the passage of time and any decreases in implied volatility.
Investors and/or traders would setup an iron condor if the market is trading sideways for a specific period of time. Often it involves buying a call, selling a call, and then buying a put and selling a put. This creates a visual of a condor.
Depending on which calls and puts you buy or sell, depends on whether the strategy is a iron condor or reverse iron condors. You can either sell or take in premium, or you can purchase, buy or what is called pay for a debit of the iron condor.
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Options Strategies
The Setup
- Sell 1 OTM Put
- Buy 1 OTM Put (Lower Strike)
- Sell 1 OTM Call
- Buy 1 OTM Call (Higher Strike)
** All have the same expiration
When To Use
Minimal movement of the stock during a specific time frame and range of price points.
Things to Remember
- Your max loss is typically what you paid for during a debit.
- Your max profit is typically the net credited for during a sell of an option or spread.
- Generally Investors Buy Options when implied volatility is low.
- Generally Investors Sell Options when implied volatility is high.
Income Producing
Iron condors can produce short or long term income with defined risk but also limited profitability.
Risk
Have limited risk due to being price neutral for volatile markets and being able to profit in both directions.
Ideal Time to Use
The ideal implied volatility environment is usually high by capturing premium.
Position Management
Management of iron condors is fairly easy, depending on the strike price being tested or untested.