Last updated on April 20th, 2020
“An iron what?”
I distinctly remember that being my reaction over a dozen years ago when I first learned what an Iron Condor options trade was.
Trading long calls and puts at that point were my only strategies that I used. However, my mentor at the time highly encouraged me to add the Iron Condor to my options toolbox and it was one of the best decisions that I have made in my career.
We all love when the markets are making big moves back and forth. You will have trouble finding big profits in an active market. It’s when the market gets slow and choppy where most trades struggle.
Profit In Choppy Markets With Options
As we get closer to another election cycle, it’s going to be crucial to add in strategies that will allow you to grow your account in a choppy market.
The Iron Condor strategy is one that allows you to make money if a stock stays inside of a defined range. We refer to this range as our “Profit Window”. I don’t care of the stock moves up, down, or sideways as long as it stays inside of our profit window we can make money.
You put on an Iron Condor by selling an out of the money call spread and an out of the money put spread at the same time.
For this week’s Options Trade Of The Week we are going to sell an Iron Condor on DIA which is the Dow Jones Industrial Average ETF.
Iron Condor – DIA
For this trade, we are going to utilize the September monthly options that have 42 days left to expiration.
- We are going to sell the 268/270/250/248 Iron Condor
- This means we are selling the 268/270 call spread and the 250/248 put spread at the same time
- We can open this trade and collect $1.08 or $108 per spread
- This trade will require $92 of capital per spread to put on
The $108 is the most I can make on the trade and the $92 is my maximum loss. We make money if the stock stays inside of the Profit Window which is defined by 269.08 on the upside and 248.92 on the downside.
We don’t care if DIA moves up, down, or sideways as long as it stays inside 269.08-248.92 we get to make money.
We are able to make money from time decay adding up and from volatility decreasing.
The goal is to buy this spread back cheaper than what we sold it for. My target level is at $.27. If we can close the trade for $.27 it would give us 75% of our max profit.
While it’s not the biggest profit potential in the world, it’s a great way to stay active and generate a profit from a sideways moving market.
For a complete break down of our Trade Of The Week make sure you review the video below. You will learn the details of how we are placing trade trade including how we plan on managing it from start to finish.
If you are interested in learning how to find these trades, feel free to contact me directly with any questions you might have. Mike@netpicks.com.