![]() In the figure below you can see a hypothetical option chain of ABC stock. Let’s assume that ABC stock is trading at $55 per share. ![]() We’re going to show you by walking you through an iron condor example. ![]() So, how does it work in practice? Let’s show you how to take advantage of calls vs puts using this strategy. So, the iron condor can also be seen as a combination of two vertical spreads – To check if you constructed the iron condor options the right way you need to have two selling options and two buying options.īasically, iron condor options is a four-legged trade where you’re selling out of the money put spreads and simultaneously selling out of the money call spread! Note* each of the four options have the same expiration date but different exercise prices. Now, these four different options contracts as a group are called an iron condor. In order to construct an iron condor we’re also going to buy a further out of the money put and simultaneously buy a further out of the money call for protection. Like naked forex trading, short naked options have a lot of risk and can even require a lot of capital. If this is the case we will keep the entire price we sold these options for. We do this with the hope that between now and the expiration, the stock price we will trade between the strikes and the options we sold will go to zero. The first element of an iron condor consists of selling an out of the money put and, at the same time, selling an out of the money call. You can start trading with it immediately and put time decay in your favor, even with a small account. Next, we’re going to teach you what an iron condor is and share one of our favorite iron condor strategies. Instead of fighting the time decay, we prefer to let it work for us and generate some profit out of it. When trading options, it’s critical to have a grounded understanding of the time value. If you buy options, you’re constantly fighting this time decay, also known as theta decay. Time premium is sucked out of the market every day. In options trading, the time element is very important. By the end of this trading tutorial, you’ll be an expert in trading iron condors for a living. Don’t let the name of the strategy intimidate you. The objective of the iron condor options is to allow traders to profit if the underlying instrument is not moving that much by expiration date. As a directionally neutral strategy, iron condor trading does not require you to forecast the market direction. With limited risk involved, you have the probability of winning a nice profit. You can also join our InvestorJi Academy to learn Fundamental and Technical Analysis and learn more such strategies to make your monthly income.The Iron Condor option trading strategy takes advantage of the low market volatility. Let me know what you think about it in the comments. So, this was all about the Monthly income Iron Condor Options strategy. You can always recover in the next trade. Hence we always suggest our readers not to trade emotionally and just book the losses if the range is broken. Loses can be very high if you continue holding the position when the price is breaking the range. Success Rate: This strategy will be profitable 90% of the time. In the case of Nifty, if the implied volatility is 15+ I prefer to take the trade when it is less than 12 I prefer to avoid the trade. It is necessary that the option premium is moderately high. Since we expect to make a profit by selling the option. The maximum profit will be 60+50-20-15 = 75 pointsĪnd if you are getting 50% of that, i.e 35-40 points profit, you can start booking the profits. I prefer to book, when 50% profit is there and take the next month the same strategy trade.Īt the expiry, all will go zero in case of range-bound movement in the band of 9500-10500 Like in our example we had a sell-side position in put and call options of 9500-10500 if the price touches the level of 9400 or 10600 we should exit and book the losses.įor booking profit, you can either wait for the options to go zero or you can book the profit when it is giving 50% of the calculated profit. If the range is breaking losses can be very high, therefore it is good to exit when the range is broken by 100 points, in the case of Nifty. We are going to make a profit only when the price remains within the band. This is a complete range-bound movement-based strategy. Generally, the sweet spot for iron condors is anywhere between 40 and 60 days to expiry. This strategy is designed to take maximum advantage of time decay, therefore it is good to take a position in a month ahead expiry.
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