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 involves buying of an underlying asset in the cash/futures market and simultaneously selling ATM Calls double the number of long quantity. This strategy is used by a trader who is neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited. ..
Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
Upper Breakeven Point = Strike Price of Short Calls + Points of Maximum Profit, Lower Breakeven Point = Strike Price of Short Calls - Points of Maximum Profit
IRON CONDORS Vs RATIO CALL WRITE - When & How to use ?
IRON CONDORS
RATIO CALL WRITE
Market View
Neutral
Neutral
When to use?
When a trader tries to make profit from low volatility in the price of the underlying asset.
This strategy is used by a trader who is neutral on the market and bearish on the volatility in the near future.
Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received
Upper Breakeven Point = Strike Price of Short Calls + Points of Maximum Profit, Lower Breakeven Point = Strike Price of Short Calls - Points of Maximum Profit
IRON CONDORS Vs RATIO CALL WRITE - Risk & Reward
IRON CONDORS
RATIO CALL WRITE
Maximum Profit Scenario
Net Premium Received - Commissions Paid
Net Premium Received - Commissions Paid
Maximum Loss Scenario
Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid
Price of Underlying - Strike Price of Short Call - Net Premium Received OR Purchase Price of Underlying - Price of Underlying - Net Premium Received + Commissions Paid
Risk
Limited
Unlimited
Reward
Limited
Limited
IRON CONDORS Vs RATIO CALL WRITE - Strategy Pros & Cons
IRON CONDORS
RATIO CALL WRITE
Similar Strategies
Long Put Butterfly, Neutral Calendar Spread
Variable Ratio Write
Disadvantage
• Full of risk. • Unlimited maximum loss.
• Potential loss is higher than gain. • Limited profit.
Advantages
• Chance to gather double premium. • Sure, maximum gains on one-half the trade. • Flexible and double leverage at half price.