10 Facts About The Iron Condor Options Trade
1. The only reason it is called an Iron Condor (IC) instead of just Condor is because it consists of both calls and puts.
In a traditional Condor, all 4 legs are made up or either calls or puts. 2 legs on the inside and 2 others on the outside are all from the same breed.
In Iron Condor, the two pairs of option legs are calls and puts. Calls on the upside and Put on the downside (2 pairs of credit spread).
2. IC makes money only when used in a range-bound/sideway market (stock hits support and resistance lines as anticipated).
3. It is possible to let the entire trade going into expiration and expires worthless.
4. The best way to close the trade once you are near the max reward curve is to simple buy back the short legs and let the long legs expired. It saves you extra dollars in commission.
5. IC makes little or no difference comparing to traditional Call or Put Condor in terms of the cost and max risk/reward.
6. Like a normal Condor, IC has more risk and less reward than a butterfly or iron butterfly. However, the possibility of winning and hitting the max reward is higher. There is obviously a trade-off here and you as a trader have to decide for yourselves what you want.
7. Like all others in the bird family, it is ideally placed in a high or very high implied volatility environment. IC can make a lot or all of the money if IV crushes for any reason.
8. As predicted, IC does very poorly in a low IV environment. It is not worth the time and commission because you cannot collect enough premium selling options and finance the protective legs.
9. Most professional traders use Iron Condor as the High-Probability Trade and do place their trade slightly out of both standard deviation bands. This results in low profit margin but that’s the trade-off that they are willing to take.
10. It is possible to morph this trade into a directional by-product by shifting the entire structure up or down.
Category: Iron Condor
