Short Iron Condor another volatility strategy and is the opposite of a Long
Iron Condor, which is a rangebound strategy.
Short Iron Condor differs from the Short Iron Butterfly in that the middle strikes
iron condors are not particularly popular because they produce a net debit and
offer very small returns compared to straddles and strangles with only slightly
Short Iron Condor involves putting together a Bear Put Spread and a higher
strike Bull Call Spread. The higher strike put has a lower strike than the
lower strike call to create the Short Condor shape. The resulting position is
profitable in the event of a big move by the stock. The problem is that the
reward is seriously capped and is typically dwarfed by the potential risk if
the stock fails to move.
this strategy when you anticipate increased volatility in a stock price, in
either direction, and want to make a capital gain.
is trading at $52.87 on May 14, 2011.
August 2011 45 strike put for $1.88.
August 2011 50 strike put for $3.73.
August 2011 55 strike call for $4.70.
August 2011 60 strike call for $3.02.
debit: premiums bought minus premiums sold = $3.53.
benefit is that for a small capital outlay you have the possibility of
profiting from a rangebound stock, with capped risk.
risk is the net debit you paid. The reward is the difference between adjacent
strikes minus the net debit.
in adjacent strikes minus net debit.
even up: middle long call plus net debit.
even down: middle long put strike minus net debit.
unless the stock moves outside of the outer strikes.
Of Time Decay
because you have to wait for a big movement in the stock price.
can unravel before expiration.
out the trade by selling the options you bought and buying back the options you