Iron Condor can be described as an option spread strategy that is constructed from other spread trades namely; bear call and bull put. Basically, it is a bet that a particular stock will not trade either below or above specified levels during a certain duration of time. In the instance that the closing of the stock comes up at expiration within that specific range, the trader gets to retain their maximum gain. This could be very profitable if the ROI basis is used and for a short duration such as that one. Like any strategy used in option trading, iron condor has its own advantages and disadvantages
Benefits of Iron Condor
1. Single Safe Premiums: Among the benefits of this strategy is the safer, single premium. You also have the option of taking a more conventional approach and make the choice of receiving the identical available entire net premium on bear call or single put spread position. Theoretically, you get less risk (by ensuring the prices used for striking are set far away from current prices of shares) and obtain an identical sum of money.
2. Definite Maximum Gains: Another benefit is that maximum profits that are on a half of the trade are guaranteed. Due to the fact that it is impossible for the stock to close simultaneously both above bear call’s strike price and below the strike price of bull put, one of the leg will expire worthless. This will in turn ensure you have maximum gains on that part of the particular trade.
3. Flexibility: Naturally, option trading is flexible and that also pertains to iron condor. In the event that there is a particularly big move in a stock’s share price onto which you have built your iron condor, the underwater option that is short can be purchased back at a loss. This will make the corresponding option that is long to remain open. In the instance that directional move of the stock continues, the value of the latter will decrease. This will in turn offset and potentially reverse the loss.
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