Long and Short Condors

Most people invest with the expectation that a stock will go up in price. Others look for stock value to decrease. But is there a way to invest in stocks when the market is flat? There is a way to trade sideways markets with iron Condors.

The Iron Condor is a volatility strategy, where profits are based on an increase or decrease in the implied volatility of a stocks's option.

 

 

Long Iron Condor

 

Long Iron Condor is an intermediate strategy that can be profitable for stocks that are range bound. It's the combination of two income option strategies where a
credit is received. The Vertical Bull Put Credit Spread and the Vertical Bear Call Credit Spread. Maximum profit occurs if the stock price at expiration is between the two Vertical Credit Spreads.

Construction – Short two calls (puts) of same month and adjacent strikes while long a call above the highest of the short call (put) strikes and long a call (put) below the lowest of the short call (put) strikes. Both short call (put) strikes must be equidistant from the strike of the two short calls (puts). In the case of an “Iron Condor,” short an interior strangle while long an exterior strangle around it.  
 
Function – Premium collection strategy with upside and downside protection. Also a short volatility play.  
 
Bias – Stagnant.  
 
When to Use – When you feel the stock will trade in a very tight range between two strike prices and stagnate there. Also if you feel the stock has a likelihood of a decrease in implied volatility. The long condor allows you to take advantage of these potential situations while offering the investor a fully hedged position.  
 
Profit Scenario – Maximum profit occurs when stock closes anywhere between the two short strikes and decreases as stock moves in either direction outside and away from the two short strikes.  
 
Loss Scenario – Maximum loss occurs when stock closes at or above the highest strike of the long strikes or at or below the lowest of the long strikes. Maximum loss is limited.  
 
Key Concepts – The long condor is an ideal strategy for premium collectors who seek to minimize potential losses in the event the stock moves adversely. This strategy can also take advantage of expected decreases in volatility. The strategy can be broken down and viewed as two trades.  
 
In the case of a traditional condor the position can be broken down into two conflicting vertical spreads, one long and one short. In the case of an Iron Condor, the position can be broken down to a short interior strangle surrounded by a long exterior strangle. Condors are best entered into in further out months.  

Short Condor

Short Iron Condor is the opposite of a Long Iron Condor, which is a range bound low volatility option strategy. The Short Iron Condor is a direction neutral strategy designed to profit from an increase in the implied volatility of a stock's price

Construction – Long two calls (puts) of same month and adjacent strikes while short a call (put) above the highest of the short call (put) strikes and long a call (put) below the lowest of the short call (put) strikes. Both short call (put) strikes must be equidistant from the strike of the two short calls (puts). In the case of an “Iron Condor,” short an interior strangle while long an exterior strangle around it.  
 
Function – Limited directional stock movement play. Also long volatility play  
 
Bias – Limited directional but in either direction  
 
When to Use – When you feel the stock will trade away from a range between two strikes but not aggressively. Also if you feel the stock has a likely hood of an increase in implied volatility. The short condor allows you to take advantage of these potential situations while offering the investor a hedged position.  

Profit Scenario – Maximum profit occurs when stock closes at or above the highest of the short strikes or at or below the lowest of the short strikes. The trade will also be profitable in event of increasing implied volatility.  
 
Loss Scenario – Maximum loss occurs when stock closes at or above the highest strike of the long strikes or at or below the lowest of the long strikes. Maximum loss is limited.  
 
Key Concepts – Short condors are an ideal strategy for long volatility players who seek to minimize potential losses in the event the stock moves adversely.  
 
The strategy can be broken down viewed as two trades. In the case of a traditional condor, the position can be broken down into two conflicting vertical spreads, one long, and one short.  
 
The Iron Condor can be broken down to a long interior strangle surrounded by a short exterior strangle. Condors are best entered into in further out months.