On this page you can learn about option strategies which are known as a Long Iron Condor and a Short Iron Condor.
When using options trading, you need to have a method for forecasting the price trend of the underlying entities.
The Long Iron Condor Strategy
The long iron condor is known as an intermediate type strategy. They can be profitable for stocks which are range-bound. The iron condor is a combination of a bear call spread and a bull put spread. To make a condor shape, the higher strike put is lower than the lower strike call. For the Long Iron Condor technique you must use calls and puts. Trader’s steps out involve managing there position according to the rules they have set out in their trading plan.
This can become an income strategy with the combination of 2 income strategies. Good traders investing in the stock market will trade a Bull Put Spread just below support and then as the stock rebounds off resistance adding a Bear Call Spread, in so creating the Long Iron Condor.
Preferably the stock will remain between the two middle strikes, with the maximum profit occurring if the options expire between these. Good steps in are to make certain that the trend is range-bound and identify clear areas of support and resistance.
Compared to the potential reward there is a somewhat a low risk. If the stock remains range-bound, there are relatively high profits that can be potentially cashed in. With that said, the high profit potential is more present when it is getting closer to the expiration.
Time decay can be of assistance to this position when it’s profitable. It can be damaging when the position is unprofitable. Traders have said that the safest time to implement this trade technique is on a short term basis such as a month or less than a month to expiration.
The Short Iron Condor Strategy
The Long Iron Condor (rebound strategy) and the Short Iron Condor are opposites. The Short Iron Condor strategy is not a very popular among traders as they produce a net debit and they only present small returns compared to other strategies, with the risk level just being that bit lower than other strategies. This strategy has been said to be somewhat complicated for beginner to intermediate traders.
To create the short condor shape, the higher price strike put has a lower strike than the lower strike call. This technique entails collectively using a Bear Put Spread and a higher strike Bull Call Spread. This can become profitable to a trader when there is a big move by the stock. For many expert traders, the rewards are very limited and there is a risk if the stock fails to move.
For the Short Iron Condor Strategy all options share the same expiration date. You must also use both puts and calls which involves a combination of a Bear Put Spread and a Bull Call Spread. It is important to be mindful that the long put strike is lower than the long call strike. You must also keep in mind that there must be equal distance between each strike price.
With the Short Iron Condor technique, investors look for increased volatility in the price of the stock. However, they are not really concerned with the direction it goes. Time decay with this technique is harmful for a trader. The reason for this is because you want to see lots of movement in the price of the stock. Once the position has turned into profit the time decay becomes helpful to the investor.
Profit can come from volatile stock with minimal capital outlay. With this strategy the losses can be much larger than the profits you can potentially make.