#Iron condor example plus#

What Is a Long Iron Condor?Ī long iron condor combines two vertical debit spreads: a call and a put spread. Let’s take a look at these fairly simple but often misunderstood strategies. Trading iron condors can utilize your fundamental knowledge of the underlying or the technical and many times both. Iron condor strategies can be modeled out to be neutral or directional trades depending on the outlook. While the strategies themselves are not complicated, managing the positions can be for option traders without the proper education. However, the danger is that the underlying will correct and whipsaw in the other direction.Iron condor strategies involve combining two credit spreads or two debit spreads. If you have closed the short option half of the iron condor option trade you may want to consider holding the long option to possibly profit from continued directional momentum in the underlying.

Many iron condor spread traders do this when the short option is near-the-money. The credit you receive for the iron condor option trade is generally much smaller than the max risk of the trade, therefore it is prudent to close the short option before the position is at max loss. No stock is actually owned with an iron condor option trade(uncovered position).Ĭautions with the Iron Condor Spread strategy:Ĭommission costs to open the position are higher since there are four trades, might be cost prohibitive to trade iron condors that are low net credits. If you are facing a large gain or drop in the underlying you could only close one leg of the four legs in the position. Losses are limited during an iron condor spread if the stock goes against you one way or the other. Potential returns are increased over a single Bear-Call or Bull-Put spread. The risk during iron condor investing can be controlled by setting your spreads further OTM.

The double credit achieved helps lower the potential risk. A profit can be realized anywhere above the lower break even and below the upper break even. Sold Call Strike + Total Net Credit = 160 + 0.70 = $160.70 Sold Put Strike - Total Net Credit = 130 - 0.70 = $129.30 (Maximum Difference in Strikes - Total Net Credit) (Diff in Strikes Bull-Put Spread OR Diff in Strikes Bear-Call Spread whichever is greater) - Net CreditĮxample: Index $XYZ at $146.32 per share.Įnter a 120 and 130 strike Bull Put Credit Spread:Įnter a 160 and 170 strike Bear-Call Credit Spread: (Total Net Credit ÷ Margin for the spread) * 100Ĭredit from Bull Put Spread + Credit from Bear Call Spread The return calculations for the Iron Condor Spread are: % Assnd = risk is the difference in strike prices on either spread minus the net credit. The lower break even is the sold put strike price minus the total net credit.Ī profit is realized at any price above the lower break even or below the upper break even at expiration.

#Iron condor example plus#

The upper break even is the sold call strike price plus the total net credit. profit is earned if the stock price remains above the sold put strike and below the sold call strike. You receive a net credit from both positions. Buy a Put one or more strikes lower than Sold Put in the same target month). Buy a Call one or more strikes above sold Call in the same target month).Įnter a Bull-Put Credit Spread in the same month, on the same stock (Sell a Put at or out-of-the-money. A profit is made if the stock remains above the lower break even point or below the upper break even point.Įnter a Bear-Call Credit Spread (Sell a Call at or out-of-the-money. Since there are two spreads involved in the strategy (four options), there is an upper break even and a lower break even. By doing this, an investor will potentially be able to double the credit obtained over a single spread position.

In the Iron Condor, an investor will combine a Bear-Call Credit Spread and a Bull-Put Credit Spread on the same underlying security. The Iron Condor Spread strategy is a neutral strategy similar to the Iron Butterfly. Most investors trade Iron Condor Spread strategies on the indexes as there is lower chance of a sudden change in price. The maximum risk is equal to the differences in strike prices on one side of the spread minus the net credit. The maximum profit is achieved if the stock stays between the short (sold) call and the short put strike prices. Iron Condor Spread is a neutral strategy. Combine an out of the money Bear Call Credit Spread and Bull Put Credit Spread on the same stock or index with the same expiration for all options.