The iron condor strategy is the perfect trade for range bound mostly trend-less markets. This is an option spread strategy that allows the option trader to take advantage of the passing of time as the the iron condor spread generates it’s profits from theta decay – or – the out of the money options which were bought / sold losing their value over time.

The iron condor is created by placing two credit spreads – or vertical spreads – on the outer ranges of the area on the underlying chart where the underlying is not expected to move to during the timeframe of the trade. On the upper end of the trade a bear call spread credit spread is placed – a trade which benefits from a slightly bullish to neutral to bearish movement on the stock or underlying. On the lower end we can find a bull put spread – a credit spread position that makes it’s profits from a slightly bearish to neutral to bullish market scenario.

While the trade is in progress, as long as the stock from which the iron condor was built from does not move too far too fast – and remains within the area on the chart between the two sold vertical spreads – this trade will be profitable.

Many of these trades can be place with very high probabilities of success – some in the range of 80% or so. However, what is often not talked about and overlooked by novice traders are the few times in the year when these trades can potentially bring about serious losses due to high volatility and whippy movements – which is why many seasoned iron condor traders warn those new to the game to learn this strategy thoroughly including the proper ways to manage them and adjust.

photo credit: twak

Iron Condor Strategy is a post from the Iron Condor Blog where you can get Iron Condor Spread Trading News, Information, and Strategies.

One of the most fashionable options selling strategies of non directional trading investors is the iron condor strategy.

The iron condor spread is a theta positive option strategy option traders use when they feel the underlying being used will stay within a range on the price chart over the next however many days are left until expiration day.

Iron condors are actualy two credit spreads – a call vertical spread above the current price – and a put vertical spread below the current price.

As long as these trades are placed correctly and the underlying being used doesn’t swing around too wildly during the duration of the trade (usually iron condor traders use time frames between 30 days and 90 days with the majority of them using shorter time frames) the trader can expect to win with these trades a majority of the time.

Iron Condors are attractive to option spread traders because they provide good probabilities of winning and they can be a very hands off trade requiring little time actually ‘trading’.

photo credit: trader_john

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While yes it is true that the iron condor spread has a high probability of winning (sometimes as high as 80 percent or even 90 percent) – the manner in which these spreads are constructed when they get into trouble – they can get into BIG trouble – due to the fact that this option spread strategy has an extremely challenging risk to reward ratio.

Many iron condors that non directional trading sellers utilize are of the 10 delta or less style – and these trades usually risk far more in dollar amount then they can ever give off. If a spread trader isn’t careful – and they let one of these trades ‘get away’ from them in a volatile month – it certainly is possible that a trader can at a loss point on just one of these trades that would take many winning months just to get back.

Whether a option seller is skilled at adjusting iron condors as they move against them – or simply has a risk management plan that will get them out of the trade at a predetermined loss point – in order to have long term success with the iron condor proper risk management is key.

Adjust Iron Condor is a post from the Iron Condor Blog where you can get Iron Condor Spread Trading News, Information, and Strategies.

An option vertical spread is the sale of one option and the purchase of another nearby option together as one ’spread’.

It is termed ‘vertical spread’ because if you were to look at an option chain that listed the all the available options – as well as the option sold and the option bought – these are usually listed vertically – one on top of the other. When you visualize the the sold option and the purchased option in that vertically listed option chain – visually they appear together as a ‘vertical spread’.

Both option debit spreads and credit spreads could be referred to as a vertical spread.

A debit spread is a spread that withdraws a debit from the traders account – while a credit spread is one that delivers a credit into the account.

Following are a couple provided examples of both a debit spread and a credit spread on the ETF DIA…

Debit Spread (vertical spread)
Buy 3 100 Calls
Sell 3 101 Calls

This is a bullish trade – a trader making this trade either is confident or is hoping that DIA will be heading higher.

Credit Spread (also a vertical spread)
Sell 3 105 Calls
Buy 3 106 Calls

This is a bearish trade (or neutral trade). A trader making this trade either believes or hopes that DIA will remain below the 105 price point up until expiration day.

photo credit: Patrick Hoesly

Vertical Spread is a post from the Iron Condor Blog where you can get Iron Condor Spread Trading News, Information, and Strategies.

The first time someone tried to explain the concept of option selling to me I had a near brain meltdown.

Okay, maybe that’s a little over dramatic – but it was something that was a bit difficult to wrap my head around – and after coming to understand the concept and then trying to explain it to others – I see the same cloudy confusion in most of them as I had when it was first explained to me.

It probably has to do with the fact that when you are selling options – you are selling something that you don’t own. And because I couldn’t relate that to anything else I had hear about or experienced it didn’t make much sense.

When one is trading options it is true they are allowed to sell something that they don’t own – however – they do need to prove that they have the capability to purchase it. They need to prove they have the means – the assets available – the cash in the bank so to speak.

Basically your broker is doing you a favor to sell an option that you don’t already own – however your broker isn’t stupid either. They are going to want to make sure if needed – you DO have the assets to purchase. There is no free ride.

Ways to prove this could be cash in your account – stock in your account – or simply through buying a corresponding call or put nearby ‘covering’ your sold – naked – short position.

A reason traders like to sell options rather than buy them is due to the fact that options are continually using value due to theta decay. Rather than purchase a decaying option – it is preferred to sell it to someone else.

Ways that a trader can benefit from option selling while still limiting their risk is through the use of option spread strategies like the iron condor, the butterfly spread, the double diagonal, the calendar spread, and the credit spread / vertical spreads.

photo credit: TheTruthAbout…

Option Selling is a post from the Iron Condor Blog where you can get Iron Condor Spread Trading News, Information, and Strategies.

The Iron Condor option spread trading strategy is a great way for investors to generate a decent monthly cash flow without having to site behind the computer all way watching every up and down tick of the market.

The iron condor is a theta positive option selling trade. What the iron condor trader is hoping to accomplish when placing of these spreads is to take advantage of the probabilities which say the stock which they are trading ’should’ stay within a certain range during the time left before the options expire.

This option spread strategies is constructed from two credit spreads – one made up of calls placed out of the money above where the stock is presently residing – and the other made up of puts placed out of the money below where the stock is currently trading at.

If all goes as planned – over time these two vertical spreads will lose value as expiration day approaches – until finally they reach a buy back level that is enough for the trader to realize his or her profit target – or in some cases iron condor traders might allow both – or one or the other credit spreads – to expire worthless on expiration day.

Though the scenario outlined above is ideal – and is what actually happens a majority of the time – there will be times when the underlying being used will make a abnormal move threatening one of the options sold short. And because this trade is considered to be a high risk to reward trade – the iron condor strategy trader needs to be watchful of the trade while it is on and manage it properly if such a move takes place.

photo credit: law_keven

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Two of the most talked about and popular option spread trading methods are the iron condor spread and the credit spread – also sometimes titled the vertical spread.

Actually, the iron condor is the credit spread – just times two. The iron condor spread strategy is composed of two credit spreads – one on each side of the spread.

To construct an iron condor a trader would place an out of the money call credit spread on the underlying asset – while at the same time placing an out of the money put credit spread on that same asset. This could be done in stages – leg in to the position – or at the same time as one four legged iron condor spread trade.

These option spread strategies generate income as the bought and sold options in both credit spreads lose value. As time progresses towards expiration day – the difference in value between the sold and bought option in each credit spread becomes smaller and smaller – until eventually the trader who placed the spread can buy the position back for significantly less than what it was originally sold for.

An illustration of these two credit spreads is -

Put Credit Spread…
Buy 1 iwm 50 put
Sell 1 iwm 55 put

Call Credit Spread…
Sell 1 iwm 70 Call
Buy 1 iwm 75 Call

Or – the entire iron condor together as one trade (exactly the same as above) -

Iron Condor Spread
Buy 1 iwm 50 put
Sell 1 iwm 55 put
Sell 1 iwm 70 Call
Buy 1 iwm 75 Call

photo credit: Tony the Misfit

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While many iron condor traders perhaps don’t realize this – when they employ a popular and basic iron condor adjustment strategy of ‘rolling’ they are in fact placing a ‘condor spread’ – which is a spread all unto itself (and different from an ‘iron condor spread’)

A condor spread is a four legged option spread trading strategy which looks much like an iron condor on a trading platform graph – however it is definitely different – as illustrated below.

An iron condor is an option selling trade created out of two credit spreads.

A condor spread on the other hand is a spread created from a debit spread – and a credit spread – and unlike an iron condor which contains both calls and put options – the condor spread is created from either ONLY calls or ONLY puts.

An example of a condor spread…

Purchase 5 103 SPY Put options
Sell out 5 105 SPY Put options
Sell out 5 108 SPY Put options
Purchase 5  110 SPY Put options

When an iron condor trader rolls out a threatened credit spread on an iron condor – they might do this in two separate trades – however – they could do the exact same adjustment simply through placing a condor on that threatened side.

photo credit: bunnygoth

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