What is an iron condor option? How to trade iron condor options
What is an iron condor option? Iron Condors appears for an options strategy that combines vertical put and calls spreads to provide flexible opportunities for investors to trade options. To appreciate why iron conductors can be so appealing to certain investors, you should understand what they are, how traders build them, the potential risks and risks involved, and the rewards they offer.
1. What is an iron condor option? An iron condor option is a combination of vertical spreads on the same stock, allowing the trader to profit in a sideways market with low volatility. Iron condor consists of two call and two put options (one long and one short). They all have the same expiration date but the strike price will be different.
Along with strict money management, iron condor places probability, option premium sell time, and implied volatility on the trader’s side.
What is an iron condor option? The iron conduit acts as strangler, one short and one long
2. When would you use an iron condor? Iron conduit is market neutral and has no orientation. An investor will initiate an ironclad condition when the expectation is that the stock price will stay range-bound before expiration and implied volatility will decrease.
3. How to trade iron condor options An iron conduit uses four options at different attacks, making it a welldefined threat:
Buy an Out of Money (OTM) order at an actual price lower than the current price of the underlying stock. This OTM put option will limit the downside move of the strategy Sell an OTM put with a strike price close to the current price of the underlying stock, or an ATM put (where strike price = current stock price)
Sell an OTM call at an actual price higher than the current price of the underlying stock or an ATM call (where strike price = current share price) Buy an OTM call at an actual price higher than the current price of the underlying stock. This OTM call will protect against the upside risk of the strategy
How to trade iron condor options – Payoff Diagram
4. Iron condor example For example, if a stock is trading at $100, an upside spread can be opened by selling the deal at the $95 strike and buying the deal at the $90 strike. A bearish spread can be opened by selling a call with a $105 strike and buying a call with a $110 strike. This creates a $10 wide iron conduit with $5 wide wings. If the credit received for entering the trade is $2.00, the maximum loss will be – $300 and the maximum profit potential will be $200.
Buy to open: put $90 Sell to Open: $95 put
Sell to Open: $105 Call Buy to open: $110 calls
Example for iron condor trading
5. Why is the iron condor the best strategy? The iron condor is an advanced options strategy favored by traders who want stable profits and don’t want to spend a lot of time preparing and executing trades. Being a neutral position, it can offer a high probability of profit to those who have learned to execute it correctly. Article Source: What is an iron condor option? How to trade iron condor options