Iron Condor
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.
