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Directional Assumption: 

Neutral

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.

Setup

  • Sell One Short OTM Call Credit Spread
  • Sell one short OTM put credit spread

NOTE: all options have the same expiration month.

Timeline

30-45 days

Ideal Implied Volatility

** 50% or greater**

With Iron Condors we assume the high volatility is going to stay the same or decrease.

Profit Target

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.

Time Decay

As time goes by theta works in my favor.

Maximum Profit

Potential profit is limited to the net credit received.

Maximum Loss

This is a defined risk traden.

Upside: Short Call Strike + Credit Received

Downside: Short Put Strike – Credit Received

Risk Management

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.