Optimal Iron Condor Strategy and how to find it in Option Samurai | Option Samurai's Blog
The purpose of a condor strategy is to reduce risk, but that comes with reduced profit potential and the costs associated with trading several options legs. Condor spreads are similar to butterfly spreads because they profit from the same conditions in the underlying asset.
The major difference is the maximum profit zone, or sweet spot, for a condor is much wider than that for a butterfly, although the trade-off is a lower profit potential. Both strategies use four options, either all calls or all puts. For example, a long condor using calls is the same as running both an in-the-money long call, or bull call spread , and an out-of-the-money short call, or bear call spread. Unlike a long butterfly spread , the two sub-strategies have four strike prices, instead of three.
Maximum profit is achieved when the short call spread expires worthless, while the underlying asset closes at or above the higher strike price in the long call spread.
At inception, the underlying asset should be close to the middle of strike B and strike C. If it is not at the middle, then the strategy takes on a slightly bullish or bearish bent. Note that for a long butterfly, strikes B and C would be the same. The profit curve is the same as for the long condor with calls. The profit curve is the same as for the short condor with calls. The goal is to profit from the projected low volatility and neutral price action in the underlying asset.
Maximum profit is realized when the underlying asset's price falls between the two middle strikes at expiration minus cost to implement the strategy and commissions.
Iron Condor: What’s in a Name?
Two breakeven points BEP : BEP1, where the cost to implement is added to the lowest strike price, and BEP2, where the cost to implement is subtracted from the highest strike price. The goal is to profit from the projected high volatility and the underlying asset's price moving beyond the highest or lowest strikes.
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Maximum risk is the difference between middle strike prices at expiration minus the cost to implement, in this case a net CREDIT, and commissions. Two breakeven points BEP - BEP1, where the cost to implement is added to the lowest strike price, and BEP2, where the cost to implement is subtracted from the highest strike price. Energy Trading. Advanced Options Trading Concepts. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Just enter the strike prices and option premiums into the top left input box to define the legs for the combination and the graph will update with the profit and loss. Just like a long butterfly, Long Condors are used when an investor believes that the underlying market will trade in a range sideways up until the options expire.
Condors are best used when the options are close to expiration. If the options are longer dated then the underlying asset has more chances to break away and trade outside of the boundary exercise prices. What broker do you use? Less if you do more volume. See IB Commissions for details.
Iron Condor
Pl give example that we could enter in which strike price and which time if expiry period near or far because i cant understand.. Sure - to build an Iron Condor you would short the strangle with a downside call and upside put. Then to build the wings you would need the protection of a long downside put and long downside call. Your description of the condor is accurate, except for one slight discrepency.
You say, also known as the Iron Condor. In my experience as a prof. Thanks, Jason. Privacy Policy Cookie Policy. Terms and Conditions Terms of Use. My Learn Options Email Series will take you from beginner to option expert in just 7 days.
Learn Strategies Members. In other words: Long lower strike call spread Short higher strike call spread Max loss: Limited. An easier way It's a bit cumbersome to think of a condor this way in order to determine your profit and loss points. A faster and more accurate method is to use a spreadsheet like the one below: Long Condor Payoff.