Presentation on theme: "Iron Condor October 10 th, 2009 Presented by: Dan Blanchard."— Presentation transcript:
Iron Condor October 10 th, 2009 Presented by: Dan Blanchard
Iron Condor What is an Iron Condor? What is the difference between an Iron Condor and a Condor?
Iron Condor What is an Iron Condor? The iron condor is a limited risk, non-directional option trading strategy that is designed to have a large probability of earning with a small limited profit when the underlying security is perceived to have low volatility. Simply put, the iron condor strategy can also be visualized as a combination of a bull put spread and a bear call spread or credit spreads.
Iron Condor What is a Condor? The Condor is similar to the Iron Condor with the following three differences: The first difference is that Condor Spreads are made up of the same class of options, either all call options or all put options. The second difference is that Condors are generally debit spreads whereas Iron Condors are credit spreads. The third difference between the two is that the Condor Spread could be composed of ITM options whereas the Iron Condor consists of OTM options.
Iron Condor Limited risk Maximum loss for the iron condor spread is limited but significantly higher than the maximum profit. It occurs when the stock price falls at or below the lower strike of the put purchased or rise above or equal to the higher strike of the call purchased. In either situation, maximum loss is equal to the difference in strike between the calls (or puts) minus the net credit received when entering the trade. The formula for calculating maximum loss is given below: Max Loss = Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid Max Loss Occurs When Price of Underlying >= Strike Price of Long Call -or- Price of Underlying <= Strike Price of Long Put
Iron Condor Limited profit Maximum gain for the iron condor strategy is equal to the net credit received when entering the trade. Maximum profit is attained when the underlying stock price at expiration is between the strikes of the call and put sold. At this price, all the options expire worthless. The formula for calculating maximum profit is given below: Max Profit = Net Premium Received - Commissions Paid Max Profit is achieved when the price of underlying is in between Strike Prices of the Short Put and the Short Call
Non-directional Large probability of earning a small limited profit when the underlying security is perceived to have low volatility The best thing the underlying security can do after you have entered an Iron Condor is NOTHING!
Iron Condor References Additional information and downloads can be found at