Iron Condor Lesson 1 – About the Iron Condor
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http://www.sjoptions.com presents a mini series on trading the popular option spread called the Iron Condor. In this first lesson of the Iron Condor we talk about the characteristics of the trade, why people do it, the risks involved, trade setups and much more. I said 5 when I meant to say 4. Enjoy the class anyhow.
Hi there everybody! This is Morris from San Jose Options and welcome to this series on the iron condor spread. This is one of the most popular trades that option traders do. I think it’s going to be a very interesting discussion. Let me go ahead and get started and we’ll talk about some of the highlights of this series.
First of all, this is the iron condor. It looks like this. You have a trade that can make a profit, hopefully, produce monthly returns if the underlying stays between a certain range. Right now, we’re looking at the Russell. You can see if it stays between this area here and this area here, which is, you can see the price is down here around 880 to, for example, about a thousand. If it stays within that range for about a month’s time, then you have, in many cases, about a 10% return potential, depending on how your adjustments go and things like that. Then you’ll see, if you finish this trade beyond this point, then you could actually lose up to this amount over here. Some people would refer to that like 90% but to me, I would just call it a 100% loss because tome, it’s how much you put in the trade and so that your max loss on either side. That’s about the risk profile you have.
Usually, with this type of trade, if it’s a high prob, somewhere around 85% probability of profit or at least finishing the trade within this range. That’s kind of a summary of the trade. You have a high probability trade. You’re trying to make about 10% of the money you invest. The underlying symbol needs to stay within a range for 30-45 days for you to make, possibly, 10%. If the underlying symbol moves out of that range, then you can actually lose all of the money on the trade if you don’t manage it but we’ll get into managing and things. That’s the risk profile and then we’ll get into the Greeks about the trade. What makes it an income spread is it has what we call positive theta, so we’ll discuss that.
This series is going to go like this. Number one, we’re going to discuss how to construct a trade. In the next video, we’ll start to construct this. Then, class number two, we’re going to discuss the difference between the leg widths of the trade because you can create a wide leg width or narrow and most option traders don’t understand the difference so we’ll talk about that. It can make a difference on how the trade behaves. Number three, we’ll talk about, we’ll have a discussion on the probability. We’ll compare a more narrow condor which is considered like a lower probability and then we’ll compare a wider one and we’ll talk about the differences. Then we’ll also talk about the actual reality of the trade so you have to consider the mathematical as well as the realistic probabilities. We’ll talk about that. Number five, we’ll get into the risk involved in this type of trade. And then, number six, we’ll get into some adjustment techniques.
There’ll be an interesting discussion. You’ll probably find some new information. Every teacher has, you know, their insight into the different trades. I’ll share with you my point of view on this trade and the nuances that I’ve learned about it from my experience in trading it and studying it and back testing and things. It should be a very interesting series and I welcome you to join us in the adventure of exploring the iron condor. I’ll see you in the next class. Thank you very much!