Iron Condor Strategy
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.
