Iron Condor strategy

Strategy description

You can think of the Iron Condor as simultaneously running an out-of-the-money short call spread and an out-of-the-money short put spread. Some investors prefer this strategy over a long condor spread because it provides a net credit upfront, adding immediate income to your account.

Typically, you set up the spread with the stock price approximately halfway between the two middle strike prices (strikes B and C). If the stock isn't centered at the start, the strategy may lean slightly bullish or bearish.
The distance between the lower strike prices (A and B) is usually equal to the distance between the higher strike prices (C and D).

However, the distance between strikes B and C can be adjusted to create a wider sweet spot, giving you more flexibility.Your goal is for the stock price to remain between strike prices B and C at expiration.

An Iron Condor has a broader sweet spot than an Iron Butterfly, but the tradeoff is a lower potential profit.
The setup
· Buy a put, strike A
· Sell a put, strike B
· Sell a call, strike C
· Buy a call, strike D
· Generally, the stock will be between strike price Band strike price C
Who should run it
Professionals with extensive experience
When to run it
You’re anticipating minimal movement on the stock within a specific time frame.
Break-even at expiration
There are two break-even points:
· Strike B minus the net credit received.
· Strike C plus the net credit received.
The sweet pot
You achieve maximum profit if the stock price is between strike B and strike C at expiration.
Maximum potential profit
Profit is limited to the net credit received.
Maximum potential loss
Risk is limited to strike B minus strike A, minus the netcredit received.
Margin requirement
Margin requirement is the short call spread requirement or requirement (whichever is greater).

NOTE: The net credit received from establishing the iron condor may be applied to the initial margin requirement.

Keep in mind this requirement is on a per-unit basis. So don’t forget to multiply by the total number of units when you’re doing the math.
As time goes by
For this strategy, time decay is your friend. You want all four options to expire worthless.
Implied volatility
After the strategy is established, the effect of implied volatility depends on where the stock is relative to your strike prices.If the stock is near or between strikes B and C, you want volatility to decrease. This will decrease the value of all of the options, and ideally, you’d like the iron condor to expire worthless. In addition, you want the stock price to remain stable, and a decrease in implied volatility suggests that may be the case.If the stock price is approaching or outside strike A or D, in general you want volatility to increase. An increase in volatility will increase the value of the option you own at the near-the-money strike, while having less effect on the short options at strikes B and C. So the overall value of the iron condor will decrease, making it less expensive to close your position.

ETF: trades perspectives

One week
Two weeks
One month
TickerEntered DateExpiry DateStrike PricesStatus
MSFT02-Aug16/08/2024390.0 - 380.0settled (+81)
TSLA02-Aug16/08/2024180.0 - 170.0settled (-25)
MSFT01-Aug16/08/2024395.0 - 385.0settled (+100)
QQQ01-Aug16/08/2024440.0 - 430.0settled (+90)
TickerEntered DateExpiry DateStrike PricesStatus
MSFT28-Aug06/09/2024390.0 - 380.0settled (+81)
TSLA28-Aug06/09/2024180.0 - 170.0settled (-25)
MSFT28-Aug06/09/2024395.0 - 385.0settled (+100)
QQQ28-Aug06/09/2024440.0 - 430.0settled (+90)
TickerEntered DateExpiry DateStrike PricesStatus
MSFT02-Aug16/08/2024390.0 - 380.0settled (+81)
TSLA02-Aug16/08/2024180.0 - 170.0settled (-25)
MSFT01-Aug16/08/2024395.0 - 385.0settled (+100)
QQQ01-Aug16/08/2024440.0 - 430.0settled (+90)