Iron Condor Strategy Explained - Full Example on $SPY ETF
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- Опубліковано 10 сер 2021
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What Is an Iron Condor?
An iron condor is an options strategy consisting of two puts (one long and one short) and two calls (one long and one short), and four strike prices, all with the same expiration date. The iron condor earns the maximum profit when the underlying asset closes between the middle strike prices at expiration. In other words, the goal is to profit from low volatility in the underlying asset.
The iron condor has a similar payoff as a regular condor spread, but uses both calls and puts instead of only calls or only puts. Both the condor and the iron condor are extensions of the butterfly spread and iron butterfly, respectively.
Understanding the Iron Condor
The iron condor strategy has limited upside and downside risk because the high and low strike options, the wings, protect against significant moves in either direction. Because of this limited risk, its profit potential is also limited.
For this strategy, the trader ideally would like all of the options to expire worthlessly, which is only possible if the underlying asset closes between the middle two strike prices at expiration. There will likely be a fee to close the trade if it is successful. If it is not successful, the loss is still limited.
The options that are further OTM, called the wings, are both long positions. Because both of these options are further OTM, their premiums are lower than the two written options, so there is a net credit to the account when placing the trade.
By selecting different strike prices, it is possible to make the strategy lean bullish or bearish. For example, if both the middle strike prices are above the current price of the underlying asset, the trader hopes for a small rise in its price by expiration. In any case, the trade still carries a limited reward and limited risk.
Iron Condor Profits and Losses
The maximum profit for an iron condor is the amount of premium, or credit, received for creating the four-leg options position.
The maximum loss is also capped. The maximum loss is the difference between the long call and short call strikes, or the long put and short put strikes. Reduce the loss by the net credits received, but then add commissions to get the total loss for the trade.
The maximum loss occurs if the price moves above the long call strike, which is higher than the sold call strike, or below the long put strike, which is lower than the sold put strike.
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#IronCondor #TradingOptions #SPYStock
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DISCLAIMER:
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Very good explanation. Thanks so much
Thanks for watching Tommy! Cheers!
Short iron condors are a bit easier. Longer iron condors are harder because anything could happen over a longer time frame. They could a shorter one as well. They just take a bit more watching the a typical buy & hold.
Best explanation
Awesome Jake, I was really looking forward to this video. I see your point as to why you don’t like it. Still, seems pretty tempting, I might just do it on SPY but for a shorter time frame. Will probably collect a lot less premium, but the market ain’t making huge swings in a month from now either hehe.
Thanks Jake, really loving these advanced option trading videos.
I appreciate that Mr. Silva! This is an interesting options strategy for sure! I can see why it is popular.
Hello, I just found your videos. I am curious on your thoughts on weekly Iron Condors vs. longer DTE such as your 40 day example. Do you have multiple Iron Condors in play at the same time with laddered expiration dates? thanks
Can you do on Fidelity? Please
Thanks. Leaving a comment so the algorithm knows it's good😂
Thanks for the reminder and comments. It's been a bit since I was trading them. Cheers
Thanks Nick! I appreciate the support!
You rock !!
So if I trade the s&p 500 credit spreads using iron condors, which expire Monday, Wednesday and Friday, do I need to choose an expiration date on the day within that week or choose like ten or more days out? I have been choosing the expiration date within the same week and that could be why I'm not seeing the $1000 or $2000 a week like other people in my class. Thanks for any tips you may have.
On to Iron Butterfly next? In a Gadda Da Vida! :-) Enjoyed this, as usual.
I will look in to it! Thanks for the suggestion Craig!
Thank you
You are welcome D!
Hi Jake, what about 25 delta on either side? this gives 50/50, plus lower the dte, just some ideas...
would you close the position if it gets closer to strike prices?
or wait to the end?
what if the price falls between the call spreads or the the Put spreads, do you also lose everything?
when do you MUST exit the trade,there has to be a place where YOU MUST exit, then perhaps open new position.
The entire youtube does n't answer these questions, in easy terms and those are far important than just explaining what it is or how much money you can make!
I know it’s been 10 months but to put it simply you should for sure close the position if it’s looking like it may sway past your strike prices if it’s too bullish sell if it’s too bearish sell if it’s side to side trading your good and you gotta watch it ALL day.
Great video Jake, please do one on the BlockFi BTC earning credit card next.
Thanks Ace! I can look in to it!
Can you do a video explaining how in the money credit spreads work
Hey Keaton! An In the Money credit spreads has the same risk/reward as an out of the money debit spread. Odds are not good since you need large price movements.
My problem with the Iron Condor is that it can be hard to get all the legs filled, you price one leg incorrectly and you end up kinda screwing yourself lol. Not to mention exiting positions is just as hard.
I agree with that you would need to use a few dollars towards bid or ask I would always start at mid.
Yep... this is very true
I agree.
Nice video again Jake. On a separate note, what is going on with COST? It doesn't seem to stop going up. I remember you bought a put at 380, good that you sold it. Never bet against COST :)
Hey Sh B! I have no clue... the valuation of that stock is way past the point of all time highs and being over-valued. I love the company... but I don't understand this insane bull run.
@Jake Broe I think I found a good stock to try this on, $OFLX. $180 top to $120 bottom. Is this the type of stock chart you need for this to work?
Hey Jake, my latest dead hand 1st level option has been hanging around for weeks, but not reaching the next level of 20% down. Do you have the issue and any new improvement on the strategy? Thanks
Yep... I've been stuck on the 1st level for basically 2 weeks as well. There has been no volatility in the market. I've been thinking about making a 10% rule for the first level only or something to just get a little more traction. I don't know though, these are strange times for the market.
@@JakeBroe Thanks for the quick reply and suggestion! I will think about it.
@@JakeBroe btw I closed it today with $20 profit lol; will wait aside a while and see.
It doesn't matter if your short call is $7.50 away from the underlying price while your short put is $12 away from it ? Shouldn't they be equidistant from the underlying price or it doesn't matter ?
The probabilities you explained don't really make sense to me. Because if there's a 30% chance it's above. The one strike price and a 30% that goes below the other strike price , adding them together that you said makes 60%. However, if that were true, then at each strike price, there's a 70% chance that it falls above or under it. So with that logic, there's a 140% chance that it falls in between the outer 2 strike prices.
If you're using 10% Deltas aren't you safe?
so, I'm looking at that diagram, and let's say that the stock is shooting up. what if I by back the put spread, which I'm making money, and sell another put spread with higher strike prices and get a credit, that way the put spread credit compensates for the loss on the call spread. Oh never mind. you you just covered that...
Haha, sure. There are lots of strategies here. People don't have to hold the entire position the entire time. Cheers!
which do you think is the best trading platform?
I don't know. Depends how technical you want to be. Professionals love TD Ameritrade's Think or Swim platform. For me, Schwab's website is good enough.
I’m a Schwab guy myself, and am quite happy with it.
Is this the same as selling a covered call and cash secured put at the same time on the same stock?
Hey Cyril! No, selling a covered call (and owning 100 shares) and a cash secured put on the same stock at the same time would be a reverse straddle/strangle. The Iron Condor has long and short legs. What you are suggesting only has short legs.
@@JakeBroe thanks for clarifying. What’s the additional risk of the reverse straddle/strangle as opposed to the wheel? I see this as a potentially better way to get premium with the same risk as the wheel
whats the APY of this strategy?
Haha, that's what I am here for Darrell! Cheers!
@@JakeBroe what is the APY of iron condor is it half of bull put spread? because bull put spread and bear put spread together?
Jake? The Ukraine war video guy... talking Iron Condors?