A trader shorts or writes a Call Option when he feels that underlying stock price is likely to go down. Selling Call Option is a strategy preferred for experienced traders.
However this strategy is very risky in nature. If the stock rallies on the upside, your risk becomes potentially unquantifiable and unlimited. If the strategy
Reverse Iron Condor as the name suggests is the opposite of Iron Condors. In Reverse Iron Condor, a trader is bullish about volatility and expects the market to make a significant move in the near future in either direction. Here a trader will buy 1 OTM Call Option, sell 1 Deep OTM Call Option, buy 1 OTM Put Option, sell 1 Deep OTM Put Option. This strategy also ..
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
SHORT CALL Vs REVERSE IRON CONDOR - When & How to use ?
SHORT CALL
REVERSE IRON CONDOR
Market View
Bearish
Neutral
When to use?
It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.
In Reverse Iron Condor, a trader is bullish about volatility and expects the market to make a significant move in the near future in either direction
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
SHORT CALL Vs REVERSE IRON CONDOR - Risk & Reward
SHORT CALL
REVERSE IRON CONDOR
Maximum Profit Scenario
Max Profit = Premium Received
Strike Price of Short Call (or Long Put) - Strike Price of Long Call (or Short Put) - Net Premium Paid - Commissions Paid
Maximum Loss Scenario
Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
Net Premium Paid + Commissions Paid
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT CALL Vs REVERSE IRON CONDOR - Strategy Pros & Cons
SHORT CALL
REVERSE IRON CONDOR
Similar Strategies
Covered Put, Covered Calls
Short Condor
Disadvantage
• Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected.
• Potential loss is higher than gain. • Limited profit.
Advantages
• With the help of this strategy, traders can book profit from falling prices in the underlying asset. • Less investment, more profit. • Traders can book profit when underlying stock price fall, move sideways or rise by a small amount.
• Able to profit whether stocks move in either direction up or down. • This strategy can be used by option traders who cannot use credit spreads. • Predictable maximum loss and profits.