Iron Condor is a neutral trading strategy. A trader tries to make profit from low volatility in the price of the underlying asset. This strategy will be better understood if you recall ‘Bull Put Spread’ & ‘Bear Call Spread’. A trader will buy one Deep OTM Put Option and sell one OTM Put Option,. He will also sell one OTM Call Option and buy one Deep OTM Call Option.
This strategy is simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. The ..
Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
Sale Price of Underlying + Premium Paid
IRON CONDORS Vs PROTECTIVE CALL - Risk & Reward
IRON CONDORS
PROTECTIVE CALL
Maximum Profit Scenario
Net Premium Received - Commissions Paid
Sale Price of Underlying - Price of Underlying - Premium Paid
Maximum Loss Scenario
Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid
Premium Paid + Call Strike Price - Sale Price of Underlying + Commissions Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
IRON CONDORS Vs PROTECTIVE CALL - Strategy Pros & Cons
IRON CONDORS
PROTECTIVE CALL
Similar Strategies
Long Put Butterfly, Neutral Calendar Spread
Put Backspread, Long Put
Disadvantage
• Full of risk. • Unlimited maximum loss.
• Profitable when market moves as expected. • Not good for beginners.
Advantages
• Chance to gather double premium. • Sure, maximum gains on one-half the trade. • Flexible and double leverage at half price.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
