The Iron Condor… Don’t let the name intimidate you. It’s actually pretty simple and is one of the most powerful option strategies that exists.
The strategy consists of a short call and put, and also a long call and put as protection to limit our risk. This way, we are able to sell option premium even with a small account and with very little risk.
Watch this video to learn how to trade the Iron Condor to make a low-risk non-directional trade that allows you to collect option time decay and also capitalize on high Implied Volatility.
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Is it possible (if the options you go short are American options) that you could lose more than $300 on this trade (my mental math says $800 but I'm not certain) if the stock price goes wildly in one direction then wildly in the other?
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Starting with the standard way to trade the double bottom, your entry is taken after price breaks the breakout line. Most traders opt to wait for a candlestick to close above the breakout line to enter. Your stop loss is placed under the most recent low. If you want to learn more on impulse and correction. i commend blended model strategy, get your copy of Dmitry vladislav eBook, the candlestick bible material that works, it has helped thousands of traders become profitable in few years. it would help you too.
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In the example what would be the P&L if the Spot price of the stock at the end of the expiry is less than $60, i.e. $50, as per my calculation the value is $3000, please confirm whether my understanding is correct?
yes, you can close it when you want, i like to take a little more than 50% of gains and close it. in this example with only 30 days if you wait too much you would have a big gamma risk and your pnl will come wild, id bail out early.
if the option expire otm nothing happens, if you let a call expire itm they will assign your call and you end up paying for the shares and assigment fees
Great effort and video. I have a question , let say expiration is after 15-20 days , do we have to sell the iron condor before expiration or on the day of expiration they will calculate the profit/loss
If markets are efficient, that should apply to option prices, as well.
In other words, the option prices should take this and any other trading strategy into account such that after accounting for commissions this should not be profitable.
So how is it possible to have an edge?
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Hi. Does every options order you place gets filled every time ? For example if u trade forex and cfd your limit orders have to be filled (there has to be buyer and seller). Does option work the same way ?
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Many thanks, I been tryin to find out about "best options textbook" for a while now, and I think this has helped. Have you heard people talk about - Winoorfa Option Olegroson - (do a search on google ) ? Ive heard some decent things about it and my work buddy got excellent results with it.
It's a senseless idea.. the risk reward is completely imbalanced and off! With a $200 potential profit and $300 max loss, out of 5 trades you are forced to HAVE to win 3 times for you to just break even. Risk / reward with these normal iron condor spreads is just totally off with me.. the order has to be reversed. Go long rather than going short on those iron condor spreads. Buy the @65 and @85 contracts and sell the outer ones. You want to make sure that you need less wins to make more profits, not more wins to make more profits. Why? Because in trading it's likely you'll have more losses than wins over time -just how the trading business goes! So with the type of spread you have there, if out of 10 trades say you win $200 on 5 trades and loose $300 on the other 5 trades.. you are loosing -$500 at the end of the day. You have to flip your odds.. risk $200 to make $300, not vice versa. Try to put your risk even way lower for more potential profits. Risk $200 to make $800 for example (find the right timing between IV and TimeValue to achieve this type of risk / reward) .. a 1:4 risk / reward is a smart move. Meaning that for instance if you risked $200 to make $800 and out of 10 trades you loose 7 trades and win only 3 trades, you will be $1,000 in profit here even though you lost more and won less! If say you end up winning 5 trades and loosing 5 you will be $3,500 strong and solid in profits! Don't allow risk / reward to be imbalanced. Over time you will be fighting a loosing battle. Sadly enough. Get the proper risk / reward ratios that can work for you over time. Trading is a probability business, not a hope business.
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Oh. Good question. I'm not sure, but I think that it must be large institutions, which would be looking for a sure thing. Someone has got to want to buy/sell 100 shares of stock, rather than trade options. I know insurance companies prefer safe investments, since they're already taking a lot of risk just by selling insurance. A lot of trusts and retirement accounts prefer the sure thing as well. You're, in effect, getting paid to take risk, whereas they paying so that they don't have to take on risk.
I'm guessing, though; I don't actually know.
UmTheMuse You just explained to me how options work, I’m asking how do I secure the money from puts I’m supposedly selling. I need another contract to sell the option at price of the date I invest in the corridor? So I’m borrowing against it, but who is going to lend it to me when they know it’s going to zero? Who is going to pay for the option when it’s worth zero at the strike date?
I'm new, too, but this one I believe I know. You're making a promise to do such-and-such on a specific date. If you sell a call, you're promising to sell 100 shares of a stock at the strike price at the agreed upon date (you are allowed to buy a similar contract from someone else later, so don't feel like you have to actually buy the stock in order to sell it later). In exchange, someone will pay you for that privilege (if you pay someone else later, then you're paying them for that privilege).
Same thing with a put. You promise to buy 100 shares of a stock at the strike price sometime in the near future. Either way, you will have to set aside some money to pay for this, either by buying calls/puts or holding on to some money just in case. Btw, that's what he means at 6:47 when he talks about a capital requirement. Your broker makes you set aside the max potential loss, just in case.
If we move the strike 10 points and lower the ITM probability, does it mean the Iron Condor bracket is getting narrow and we have to make adjustments if the price near the Sell prices on both Call n Put side eventhough is better Risk Reward than 30% Probability ITM?
No, I don't think so. You sort of can: Buy puts and calls instead of selling them. So, if a stock is trading at 70, you could buy a put at 65 and buy a call at 75, for example. Then you lose money unless a stock trades a fair bit below 65 or above 75 (remember to account for how much the options cost you). That said, you would have a hard time buying (selling?) the insurance parts. You're already trying to shoot the moon, right?
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love it..........this strategy and vertical spreads are the only ones I use.........I almost always just sell puts its safer and I know my risk to reward....so I just rather keep the premium...good video...........
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if you buy as an iron condor, can you ultimately sell either a put or call depending on the direction of the stock to cut losses short and ride the profit a little higher? or if you guy as an iron condor you also have to sell as iron condor?
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Thank you for posting this you should be given a reward from you tube as this is the best explanation and visual presentation as most people who post here you can't see there screen which makes it worthless
What happens if the stock price ends up somewhere between the short strike price and the protection purchase? For example, in the video you sell a 65 put and buy a 60 put; what if the stock price ended up at 62.50?
You would get assigned and be short 100 shares of the stock at $65 a share. That basically means you need to buy it back at a price below $65 to make a profit. If the price is at $62.50 after expiration that means you could buy to close for a $2.50 profit per share(65.00-62.50). But if the stock price keeps going up, and you still held on to the stock, you could be looking at a very large loss. For example if the price went up to $70 a share after expiration, then you would be down $5 dollars per share for a total of $500 loss.
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so actually you can make more money if you don't buy the protection --if the stock just stays in the range. If you have a good rangebound stock and can combine covered calls with cash protected puts you make out like a bandit! :) You can buy te protection anytime later, if needed
"so actually you can make more money if you don't buy the protection --if the stock just stays in the range."
That's what folks with larger accounts and more experience do. It's called a short strangle.
"If you have a good rangebound stock and can combine covered calls with cash protected puts you make out like a bandit! :) You can buy te protection anytime later, if needed"
That's an excellent strategy used all the time.. but usually with larger accounts. Doesn't work as well with small ones.
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Seriously, best option videos that I've ever seen! Good luck if you found someone else explaining a complex trade such as Iron Condor simply and beautifully as this guy just did! Great job guys. Please keep the good work up and keep the videos coming. Knowledge is the power.
just a thing I haven't really understood about your videos.
do you have all options expire?
because I have seen multiple places talking about waiting till expiration date and others trading their options before expiration. also
if you sell an option, can you trade this? (just to get my facts straight)
Great video! Thank you for sharing.. Question...at 2:57 when your strategy is showing, when you say you are "selling the call and put options, is the @2.00 reflecting that you are selling 2 contracts? and only buying 1 contract for each put and call? Thank you again!
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