Analysis Techniques & Strategies
A Iron Condor - Sell is a neutral active market strategy similar to a Butterfly spread. It involves four transactions; purchasing a Put option at the lowest strike price, selling one Put options at the next higher strike price, selling a Call at the same strike price, and purchasing a Call option at the next higher strike price. A Iron Condor - Sell is a strategy you can use when you feel the underlying asset is going to make a price move, but you are not sure of direction.
A Iron Condor - Sell has a limited maximum profit potential. The position will also benefit from an increase in volatility The transaction costs for this strategy are very high, since you must consider the slippage (bid-ask spread) for four separate positions.
Here is an example of this option strategy:
Long 2 XYZ OCT 55 Put $.75 you purchase ($ money out)
Short 2 XYZ OCT 60 Put $3.25 you sell ($ money in)
Short 2 XYZ OCT 65 Call $2.25 you sell ($ money in)
Long 2 XYZ OCT 70 Call $1.25 you purchase ($ money out)
You sell an Iron Condor for a debit.
| Risk Factor | Effect |
| Price Sensitivity [Delta] | Position benefits from a active moving market |
| Time Decay [Theta] | Position is hurt from the passage of time |
| Volatility Sensitivity [Vega] | Position benefits from a increase in volatility |
Maximum gain is realized on expiration date outside the strike prices of the options sold.
Maximum loss is the debit you incur to put on the trade between the inside strike price.