The iron condor strategy. This strategy profits when the stock or index being used does NOT make significant moves. Of course options traders try to utilize strategies that can take advantage of movements in the market. A lot of times there is not big movements in the market or the underlying being used so the options being traded expire worthless. Iron condor traders love this type of market environment as it is the ideal situation to pull profits from the markets.

You can imagine the iron condor strategy trade as a purchased strangle and a sold strangle. A “strangle” is where a trader buys an an out-of-the-money call as well as an out-of-the-money put option. Strangles’ premiums are less than those of straddles due to the fact that the contracts are out of the money. Another way you can look at the iron condor strategy is to think of it as two credit spreads placed at the same time – a put credit spread and a call credit spread. The long calls or puts above and below where the short options are placed at are the wings.

For example, let’s take a look and we find that the SPX is trading at around thirteen hundred and so we buy the jan call option at 1375 bringing in right around $245, and at the exact same time we buy the january put option for $4.38. As long as you have chosen a broker that is options friendly – you just need to make sure that you have the funds available to margin the difference between to the strikes. In this pretend scenario, in order to do this spread one would need somewhere around $1320.00.

The calculation would be:

Thirteen hundred seventy at $2.50

1355 @ 4.50

What this shows is that that the credit you bring in is about two dollars.

$15 dollars minus $2 dollars = Thirteen – then times this by one spread (100 contracts) equals about $1,320.00 dollars.

If the underlying finishes the trading cycle below the sold options, the trader gets to keep the entire credit which can translate to a great return in a short period of time.

This example described is one of the wings of the iron condor spread trade – and it is the call spread side of the trade. To construct a fully placed iron condor, one would need to add a bull put spread – which is a put credit spread – below where the underlying is trading at.

Iron condors are great trades and be traded consistently with very profitable results – and some traders use this strategy as their only trading strategy to pull income from the markets. Of course, however, there are potential risks with this strategy – just like any trading strategy.

Knowing which stock or index to use – as well as knowing how and when to properly place, exit, manage and adjust the iron condor is essential. Managing and adjusting these trades are a major part of experiencing success with this type of trading. Not having a solid grasp on how this trade works – or not having a plan in place for what you will do if one of these trades ever moves against you (which it will eventually do) could wind up costing significant losses. Ask me how I know!

To discover more about the iron condor option strategy, visit this training website for heaps of free trading videos, illustrations, and reports on how to fittingly put on, close, supervise and adjust the iron condor strategy to produce a ongoing monthly earnings.