Iron Condor Strategy by SJ Options
Iron Condor Strategy
In this excerpt from our options mentoring course, Morris gives us some insight on understanding the probability of the Iron Condor.
Morris is the founder of San Jose Options.
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This is about the actual, mathematical and it’s important to know that it’s just a mathematical probability to actually expire on the trade between your profitable zone. Remember that, I mean, it’ll make possibly between this zone here maybe about 10% or so, like the one that we set up. We have like a10% zone and you can actually achieve that in about a month, maybe 45 day. You have 85% probability, mathematical, of doing just that. That’s why the trade is so attractive to so many option traders and why it’s really probably one of the most popular trades that’s really done.
However, we’ll look at some real ones, you remember that the graph, it has an immediate risk curve, kind of like this. What happens with this spread is as the market moves either direction, it starts to kind of fall off the top. You can see like we go down in a move in either direction with the trade, it’s usually going to cost a loss. It’s really a race with your theta position and also this, your delta, which is the directional move. We also have to factor in the vega situation as well.
There is a lot of things to count for besides just the theta. Even though the trade may have a positive theta, it certainly doesn’t mean that it’s making money every day because you have the vega and you also have the delta risk to worry about. What it comes down to, it’ll depend on your risk tolerance and that appetite you have but for me, the realistic probability where I feel kind of comfortable in the trade is only about this wide, which is somewhere close to about 40%. All of a sudden, my trade that looks like it has an 85% mathematical probability…