Iron Condor Options strategy


The iron condor said to have a combination of both bull put and a bear call spread, risk limited, un-directional option trading strategy to have a maximum probability of gaining a small limited profit specially when the stated security is perceived to have low volatility.

What Is an Iron Condor?

This option strategy involves four different contracts. Some of the salient features of the strategy include:

  • When selling of one call spread and one put spread on the same date of expiration and same underlying instrument an iron condor spread is constructed in which all 4 options are generally OTM(out-of-the-money) and call spread put spread are of equal width.
  • When the investors sell the call and put spreads options, investor is buying the iron condor. The cash collected represents the maximum profit for the position.

How Do Iron Condors Make/Lose Money?

Investor who has an iron condor, it’s their belief that the bottom-line index or security remains in a comparatively narrow trading range from the time investor open the position until the options expire. If all the options are OTM Type and expiration arrives, Options expire worthless and investor save penny (minus commissions) what he contributed when buying the iron condor.

Other times it’s desirable to neglect the last few pin money profit and close it before expiration arrives, this turns into good profit and discard the risk of losses. Management of risk is an mandatory skill for all traders, especially for those who employing this strategy.

The markets are always fluctuating, and the value of underlying options can be up-down which can lead to a significant price change. And it’s not good from investors point (or pocketbook), so there are two important pieces of information you must understand:

  1. How much an investor can loose
  2. Strategy if market changes adversely
  3. Investor should not hold the position till the expiration date, as there are chances of losing money on either the call spread or the put spread; as both the options cannot be in-the-money at the same time.

According to Market circumstances investor can plan to invest on options he choose to buy and sell

  • Losing probability can decreased , but it effects reward potential in the same way so investor should go for out-of-the-money options
  • Investor can increase the reward potential , but the probability of earning that reward is reduced when he choose options that are less far out-of-the-money

All you need to know is Iron condor has a great strategy because you get to trade a neutral strategy for a smaller margin. If you follow said rules and adjust accordingly you will able to protect your condors and minimize your losses.