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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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!
Warren Buffett said that if past history is all there is to the game of riches, the richest people would be librarians. Binary options and Forex PAID and are STILL PAYING! Traders have only lost courage/faith due to scammers permeating the web. And yes, most of us were and are still ignorant of the right strategies at this discouraging moment but if you look closely you'll see that when you combine ignorance and leverage, you get some pretty interesting results! Please this advice isn't for everyone to heed, it's for those who make things happen and not those who just watch them happen! i am very proud to say that i have helped many in hitting their first million dollars in trading! It's saddening that very many of us just scroll past posts, even those that are actually one in a life time opportunities! We definitely can’t be blamed. But the successful today, have certainly lost a couple of times before but kept pushing! With the last confidence in you.. if interested in this feel free to email me... [email protected]
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You can't sell shares of stock you don't have. But a Call option is just an agreement with someone to buy stock from you at a a certain price, sometime in the future (like 30 days). If the stock price is higher than what you agreed on, the option buyer will not exercise it (it's out-of-the-money). If it looks like the option will be in-the-money, you close out the trade before expiration. Either way, you don't ever have to own any of the stock.
Is it adviceable to exit the trade on the very next second after we place trade on that time itself we are in profitif we are in profit... And doing the same trade some more time .... I mean enter the trade with profit and exit the trade very next second ..and doing some more times...
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You can sell a Call credit spread and make some option premium. Or you can sell a Put credit spread and make some option premium. Or you can sell both the Call AND the Put credit spreads and make twice as much premium. That is the Iron Condor. It's my favorite vehicle for generating monthly income.
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Actually, this isn't a good strategy. In order to make money you're required to let that trade expire within a certain price range which closing the trade early, you lost money. The odds are greatly stacked against you in terms of sheer luck that it might be within that dollar amount. I mean, look at even the most horizontal companies can jump around depending on news. You're taking a big chance here. I've bought in several times using an Iron Condor and to my surprise even after expiring In the money, I still lost. You have to deal with its depreciation of value every day, which is steadily declining the second you buy in. I've talked to others and they have the same scenario happen over and over. Many people avoid these spreads like the plague.
I have never seen such a great and wonderful strategy like Frank Robert's own, his strategy and his pattern of trading gives evryone mighty winning, all that i have lost in the time past in the market are all back to me, his strategy is earning me mightily every week, You and your strategy are wonderful Sir
Great question! But this is of no concern to us. The technology is advanced enough to where it will fill all the legs of the trade, or none at all. You won't ever get filled on only one of the legs. But the KEY is sending it as one order as we showed at the end of the video.
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According to the OCC, any option that expires 0.01 ITM will be automatically exercised unless the option holder specifically states they don't want that. So if you sell a 5 point credit spread, if the trade goes against you your maximum loss is equal to your margin requirement - premium received. For example say you sell a 60/65 put spread for $1. Even if that stock 100% tanks and goes to 0, your maximum loss will be $500(margin requirement) - $100(premium received) = $400
Hope that helps
The calls aren't the insurance. The long call and the long put are the insurance.
If you ONLY do the put side, it's called a Vertical, we have a video on this here --> https://www.youtube.com/watch?v=6_0SbRaHv1U
If you sell a put and sell a call (but don't buy the protection), then it's called a Strangle. We don't have a video on YouTube about this but we do have one on our website about this strategy (and every other strategy that we trade). Check out the site for those vids! Link in description.
You say that this strategy exploits time decaying and low volatility (our hope). nevertheless at 8:30-8:35 you say it's better using 30-60 days expiration options. So, why not using a shorter time horizon?
If it weren't for Gamma, we'd all just sell premium with 1 day to expiration and do that every week! But definitely important to find that balance. Thanks for the comment and great question though!
Haha absolutely. We use a mix of a few different programs. Paint is definitely not one of them! Shoot us an email and I'll send you a list of the programs we use. There's a contact form at the bottom of the homepage of our website that you can use to contact us!
Ok I admit I've always underestimated the Gamma. I find all your videos brillant. Can I ask u what software do u use for drawing graphs? I'm opening a blog and I'd like to avoid using "Paint" (yes, very sad) for drawing graphs and other stuff. Thanks
Because of what is called "Gamma Risk"... Yes, selling shorter duration options will REALLY put time decay in our favor. But our P/L swings will be very large and when the market goes against you, there isn't much you can do because you don't have enough time and extrinsic value on the options to make any adjustments... Kind of a more complex topic but that is the reason... When we go out to 30-60 days, we STILL have time decay in our favor, but we have much less "Gamma Risk"... 30-60 days is where we find the perfect balance between having plenty of time decay in our favor but not having gamma against us so much.
Great question! We are trading the options on the stock, NOT the shares of stock directly.
When we say we are selling an option. That just means we are selling it as an opening trade. Another term for selling an option is to "write" the option. We have videos on our website explaining this concept. It isn't as complex as it sounds!
Thanks for the comment. All the best!
Very awesome video! I've been learning about these recently and the more I watch your videos the more it makes sense! There's just ONE tiny thing I don't quite get yet, at the very end of the video where you showed what the iron condor would be trading at with 2 days left to expiration and it showed .01, and then you said you could sell it right now for a profit, how much profit would you get and how did you know that? Sorry that last part confused me a little bit. Everything else though made perfect sense, so thanks for the video! :-)
Today at 9:30 AM i have placed iron condor with march expiry options.Below are the levels which i placed.
Nifty current price 8800( rounded off)
BUY 9500 CE
SELL 9300 CE
SELL 8300 PE
BUY 8100 PE
Nifty is currently between defined levels of 8300 and 9300 .Even nifty didnt break iron condor levels, on overall it is showing loss.
My doubt is how iron condor is prone to loss ,even nifty didnt break levels.Plz clarify..!
I promise if you stick with it, it will all start to make sense. I agree, the jargon is confusing. I wish it weren't that way... I assume it's because money managers wanted to use complex terminology to make it all sound complicated so average people will feel that they can't do it themselves. But now, it kinda just is what it is.
BUT, I promise, if you hang in there (and learn the basics first to lay the groundwork), this stuff is extremely simple. It just takes some getting used to and proper education.
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Stock at 89... The 85 Call would be worth 4.00, and the 90 Call would be worth 0.00. Both puts would also be worth 0.00... So our net exit price would be 4.00. So since we entered at 2.00 and closed at 4.00, we lost 2.00.
If the short call is assigned, you'd be left with short stock at 85.00... Which is fine too. Although early assignment rarely happens, all you'd do is close the position at the current market value of 89. And you lost 4.00 on the stock that was assigned. But you kept 2.00 from the original entry. So your net loss is still just 2.00.
I know that sounds kinda confusing. We have a full video coming out on assignment soon that we will send to our email list (it won't be on YouTube). Make sure you sign up to our email list via the homepage of our site.
Yes, you're absolutely right. But that's why it's important to be on a good commission rate. We have a deal with TD Ameritrade to get cheap commissions for our members and viewers. Check out 7:24 - You'll see our commissions for this trade is only $4.00 total (that's $1.00 per contract with no flat rate).
But yes, you're right. Thanks for the comment!
Hey Rob, This will not happen as long as you enter the Iron Condor as one order. Did you see the order we pulled up at the end of this video? If we were to send that order, then it would either only fill all the legs of the trade, or none.
Basically, the entire Iron Condor will be filled on one exchange and they treat it as one order. You either fill on the whole thing, or not at all.
Hope that answered your question!
Hi, thank you for explaining everything in a easy and cohesive manner! I just have one question, if you short a option, it would be in your best interest for the option to expire correct? However do you need to offer the broker anything (as they loaned you the option to short in the first place) even if it is a statement proving the position they loaned you is worthless. I tried to google it and saw that you cannot exercise an option when it expires. Sorry I am extremely new to this and some of these terms are quite confusing. Thank you in advance if you reply!
At expiration, the 60 and 65 puts would be worthless, and the 90 call would also be worthless... The 85 Call would be worth 2.00.
Since the 85 Call is the only option that has value, then the Iron Condor as a whole would also be worth 2.00 (since the price of the iron condor is the NET price of all the short/long options). We originally sold this Iron Condor for 2.00, so if the stock is at 87, you would simply break even on the trade. See 6:58.
But instead of 87, let's say the stock is at 88.00...
The Iron Condor would be worth 3.00 (since the 85 Call is 3 points in-the-money and the 3 other legs are all worthless)... If we sold (to open) it at 2.00, and close it at 3.00, then we lost 1.00 (and, of course, since options have a multiplier of 100, this would mean we really lost $100).
Hope that made sense!
Hey Abdulla, you could trade this strategy with forex options... The problem is, forex options tend to not be very liquid so I wouldn't personally recommend doing that...
Just learn equity options! They are easier to trade than forex options and are extremely liquid!
Not sure I fully understand the question... But to sum it up, we rarely let our Iron Condors expire. We're either taking the profit early, or if it's at a loss, we would close it right before expiration...
However, there are some occasions when we let it expire ITM if BOTH the short and long option are ITM... Then it would expire and disappear (the short and long strikes would offset each other). Whether or not we do this 100% depends on commissions and fees. Sometimes if you are trading big enough size, then letting it expire is cheaper than closing it.
If you are new to this strategy, I would guess you are probably trading very small size anyways... In that case, you'll always want to close it if it's at a loss... And if it's at a profit and all the options are OTM? Well, you CAN let them expire worthless and many traders attempt this. However, if you're wondering what we do, we usually close the profit long before the expiration date.
Hope that made sense!
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