Contents

Iron Condor

What is an Iron Condor?

 

  • It is built by buying a lower strike OTM PUT, selling a higher strike OTM PUT, selling a higher strike OTM CALL and buying a higher strike OTM CALL.
  • It is a popular positional strategy traded on the Index options for consistent income. The profit potential is higher closer to the expiry. It is traded primarily on index options as they are less volatile.

Trade Set-Up

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Buy 1 lower strike OTM PUT

Naked Put-Finvezto

Sell 1 higher strike OTM PUT

short put-Finvezto

Sell 1 OTM CALL

short call-Finvezto

Buy 1 higher strike OTM CALL

Naked Call 1-Finvezto

Iron Condor

Iron Condor 1-Finvezto

Entry Checklist

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Market Outlook
  • When you have a neutral outlook and expect the price to stay in a tight range.
  • Volatility
  • Initiate the strategy when the implied volatility levels are neither moving up or down and quite stable
  • Risk Profile

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    Risk [Loss]
  • Maximum Loss is limited to the difference between strike prices minus the net credit received
  • Maximum loss occurs at the strike price of the bought CALL or PUT
  • Reward [Profit]
  • Maximum profit is limited and occurs when the price ends between the sold OTM CALL strike and Sold OTM PUT strike
  • Break Even Point
  • Middle Short Strike PUT minus the net credit received
  • Middle Short strike CALL plus the net credit received
  • Options Greeks Impact

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    Time Decay Impact [Theta]
  • Time decay is helpful for the position as long as price stays between the strikes of the Sold OTM CALL and PUT
  • Volatility impact [Vega]
  • When the price is between the sold OTM CALL or PUT then you want the volatility to decrease
  • When price is closer to the bought OTM PUT or OTM CALL then you want the volatility to increase
  • Trade Management & Exit

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    Stop Loss & Exit
  • Risk should be limited to 1-2% of your capital.
  • Exit when the price breaks the support or resistance identified while initiating the position.