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 Put Spread option trading strategy is used by a trader who is bullish in nature and expects the underlying asset to move in an upward trend in the near future. This strategy includes buying of an ‘Out of the Money’ Put Option and selling of ‘In the Money’ Put Option of the same underlying asset and the same expiration date. When you write a Put, you will receive prem ..
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 short put - net premium paid
IRON CONDORS Vs BULL PUT SPREAD - Risk & Reward
IRON CONDORS
BULL PUT SPREAD
Maximum Profit Scenario
Net Premium Received - Commissions Paid
Max Profit = Net Premium Received
Maximum Loss Scenario
Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid
Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received
Risk
Limited
Limited
Reward
Limited
Limited
IRON CONDORS Vs BULL PUT SPREAD - Strategy Pros & Cons
IRON CONDORS
BULL PUT SPREAD
Similar Strategies
Long Put Butterfly, Neutral Calendar Spread
Bull Call Spread, Bear Put Spread, Collar
Disadvantage
• Full of risk. • Unlimited maximum loss.
• Limited profit potential. • In loss situations, time decay may go against you.
Advantages
• Chance to gather double premium. • Sure, maximum gains on one-half the trade. • Flexible and double leverage at half price.
• Benefit from the time decay in profit positions but harmful in loss positions. • Profitable when underlying stock price rises, move sideways or marginal drop. • Reduce the downside risk.
