Two Credit Spreads: Iron Condor Strategy

An Iron Condor is a strategy used by many traders to help offset risk of a move against a credit spread position; however it is better to be using this option strategy in a neutral market. Not like in todays very volatile very bearish market. I’ll explain so you can see what I mean.

So what is an Iron Condor anyway?

Well, I can assure you it’s not some magical mystical
creature coming to promise you instant riches.

An iron condor represents the design it makes on a
stock graph by entering into a bear call spread and
a bull put spread at the same time.

Your basic steps for an iron condor strategy:

1. Enter a Bull Put As Follows:
A. Sell 1 Out Of The Money Put
B. Buy 1 Out Of The Money Put (lower strike point)
2. Enter a Bear Call As Follows:
A. Sell 1 Out Of The Money Call
B. Buy 1 Out Of The Money Call (higher strike point)

The whole point of an iron condor involves the price at expiration to be between the upper and lower sold strike points.

Many traders try and use this strategy exclusively thinking it will help protect them if the market turns against one of the trades. Unfortunately this is not always the case. For example in this weeks market crash especially today’s downturn, everything happens so fast you do not have time to get out of your bull put spread. If you are able to buy back the spread, you still would most likely lose more in that position than you would gain in the bear call spread.

So moral for today use the correct strategy for the market environment. Right now we are in a bear market so look for Bear Calls!