An Iron Condor is a directionally neutral, defined risk strategy that profits from a stock trading in a range through the expiration of the options. It benefits from the passage of time and any decreases in implied volatility.
Iron Condors are a lower risk trade with a lower probability of success. Therefore the credit is lower and in return does not take up much buying power.
When to Run It
I am anticipating minimal movement of the underlying stock.
- Sell One Short OTM Call Credit Spread
- Sell one short OTM put credit spread
NOTE: all options have the same expiration month.
Ideal Implied Volatility
** 50% or greater**
With Iron Condors we assume the high volatility is going to stay the same or decrease.
Winner : If my position shows a profit near 25% of the max potential gain, I will close the position early to lock in profits.
Loser: I will close the position at 2 x’s the credit recieved if it moves against me.
As time goes by theta works in my favor.
Potential profit is limited to the net credit received.
This is a defined risk traden.
Upside: Short Call Strike + Credit Received
Downside: Short Put Strike – Credit Received
This trade can be scaled up to 3-5% of my account.
I can manage iron condors by adjusting the untested side, or profitable side of the spread.
I look to roll the untested spread closer to the stock price to collect more premium.
I can go as far as rolling our untested spread to the same short strike as my tested spread, which creates an iron fly.