Long Iron condor is a strategy for stocks that are rangebound.
variation of the Long Iron Butterfly, it is in fact the combination of a Bull
Put Spread and Bear Call Spread.
combination of two income strategies also makes this an income strategy.
Traders often will leg into the Long Iron Condor, first trading a Bull Put
Spread just below support, and then as the stock rebounds off resistance,
adding a Bear Call Spread---thereby creating the Long Iron Condor.
the stock will remain between the two middle strikes with the maximum profit
occurring if the options expire between these.
all these options will expire worthless and you get to keep the credit.
to Trading a Long Iron Condor
1. Buy one lower strike (OTM) put.
2. Sell one lower middle strike (OTM) put.
3. Sell one higher middle strike (OTM) call.
4. Buy one higher strike (OTM) call.
options share the same expiration date for this strategy
this strategy, you must use both calls and puts. A Long Iron Condor is the
combination of a Bull Put Spread and a Bear Call Spread. The short put strike
is lower than the short call strike. Remember that there should be equal
distance between each strike price, while the stock price should generally be
between the two middle strikes.
You expect little movement in the stock.
this strategy when you believe the stock will have low volatility, and you are
looking to enhance income.
is trading at $27.50 on April 11, 2011.
May 2011 20 strike put for $0.25.
May 2011 25 strike put for $1.25.
May 2011 30 strike call for $1.30.
May 2011 35 strike call for $0.35.
credit from premiums sold-premiums bought = $1.95
benefit is that, for low cost, you can profit from a rangebound stock with
capped downside risk.
risk is the difference between any two strikes minus your net credit. The
reward is the net credit you receive.
difference between adjacent strikes minus net credit.
even up: middle short call strike plus net credit.
even down: middle short put strike minus net credit.
volatility would have a negative effect on this position.
Of Time Decay
when the position is profitable, and negative when it is not profitable. The
stock is profitable when you buy it, so from then on time decay erodes the
value of the position.
can close out this position just before expiration by unraveling in two-leg
out the trade by buying back the options you sold and selling the options you