Trading With Iron Condor Options

There are several different types of option spreads such as verticals, calendars, butterfly, strangles and iron condor. They all have different ways of generating a profit and used in different trading scenarios. This article, however, is going to explain the benefits and when to use one of these option spreads, the iron condor.

  iron condor options

First, in my opinion the iron condor should only be used under the following conditions.

    When the volatility (VIX) is below 40
    VIX is channelling between 25 or 40
    Credit of $0.50 or greater ($0.70 is ideal)

Second, the iron condor will produce money faster than other option spreads but carries more risk. Since you are selling this spread, it is a credit spread and therefore receive your money when you place your trade. However, since the iron condor has a low and high trading range, the stock can move out of this range causing the trader to lose money and either will have to close out the trade or make adjustments. This is less likely to happen if the volatility is below 40 and the trade is made and held during non news changing events for that stock or index.

Third, the condor can be used on any stock or index however, I recommend using it with high volume traded indexes such as the DIA or SPY. Since these indexes have very high volume it is much easier to find the desired trading range. If the stock is not highly traded then it may be more difficult to set up your trade. For example, you want to purchase a 27 call, but only a 20 or 30 is available. When this is a case, it will make it more difficult to meet the credit spread of $0.50 or greater.

Finally, the iron condor makes a great trading strategy when combined with other monthly trading strategies such as a combination of another condor used on a different stock or index or a different but complimentary spread to the condor. This combination makes a nice options portfolio and will be easy to manage and allow less time to monitor.

iron condor


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