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.
Bull Call Spread option trading strategy is used by a trader who is bullish in nature and expects the underlying asset to give decent returns in the near future. This strategy includes buying of an ‘In The Money’ Call Option and selling of ‘Deep Out Of the Money’ Call Option of the same underlying asset and the same expiration date. ..
Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
Strike price of purchased call + net premium paid
IRON CONDORS Vs BULL CALL SPREAD - Risk & Reward
IRON CONDORS
BULL CALL SPREAD
Maximum Profit Scenario
Net Premium Received - Commissions Paid
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Maximum Loss Scenario
Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid
Net Premium Paid
Risk
Limited
Limited
Reward
Limited
Limited
IRON CONDORS Vs BULL CALL SPREAD - Strategy Pros & Cons
IRON CONDORS
BULL CALL SPREAD
Similar Strategies
Long Put Butterfly, Neutral Calendar Spread
Collar
Disadvantage
• Full of risk. • Unlimited maximum loss.
• Limited profit potential to the higher strike call sold if the underlying stock price rises. • Maximum profit only if stock rises to the higher of 2 strike prices selected.
Advantages
• Chance to gather double premium. • Sure, maximum gains on one-half the trade. • Flexible and double leverage at half price.
• Allows you to reduce risk and cost of your investment. • When placing the spread, exit strategy is pre-determined in advance. • Risk is limited to the net premium paid.
