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最完整Iron Condor铁秃鹰期权交易指南

Used SPY from 2007-2017Sold 1 iron condor each day (2007-2017)Closest to 45 DTE (not using weeklies)Short leg 0.30 delta, Long leg 0.16 DeltaTested managing winners at: expiration, 25%, 50%, and 75% max profitTested managing losers at: expiration, 100%, and 200% max loss (300% max loss wasn't possible on most trades)Tested multiple entry points based on VIX values (under 14, 14-17.5, 17.5-23.5, and over 23.5)

Lesson 39 – Iron Condors

In addition, strikes A and B are below the underlying and strikes C and D are above the underlying.Usually the pairs of strikes (A,D) and (B,C) are equidistant from the underlying at the time of initial setup but not necessarily (in which case the iron condor is called a “broken” iron condor and is taking a directional bias.

For the sake of illustration and simplicity, we will consider the case of a short iron condor using equidistant strikes. So, there are one slightly OTM short put, one slightly OTM short call for the inside legs, a further OTM long put and a further OTM long call for the outside legs.

1) Buy one XYZ Jul 20xx $95 Put

2)最完整Iron Condor铁秃鹰期权交易指南 Sell one XYZ Jul 20xx $99 Put

3) Sell one XYZ Jul 20xx $101 Call

They are very similar to short iron butterflies except that they usually carry less risk and less potential profit due to the short options not being ATM. In addition, 最完整Iron Condor铁秃鹰期权交易指南 you have a higher probability of realizing the maximum profit than in the case of short iron butterflies.

1) Buy one XYZ Jul 20xx $95 Put

2) Sell one XYZ Jul 20xx $99 Put

3) Sell one XYZ Jul 20xx $101 Call

As expiration approaches, small changes in the underlying can have a high impact on the price of the iron condor in terms of percentage (i.e., Gamma is high as you get close to expiration). So, your window for profit is narrow and your profit situation could change dramatically as expiration approaches.

Sell one put at a higher strike (strike B); this short put would also be OTM but closer to the underlying

Sell one call at an even higher strike (strike C); this short call would be OTM, and equidistant from the underlying with respect to strike B

1) Buy one XYZ Jul 20xx $95 Put for $2

2) Sell one XYZ Jul 20xx $99 Put for $2.75

3) Sell one XYZ Jul 20xx $101 Call for $2.25

4) Buy one XYZ Jul 20xx $105 Call for $1.5

Net credit of $1.5 (-$2 + $2.75 + $2.25 – $1.5)

1) Strike B minus the 最完整Iron Condor铁秃鹰期权交易指南 net credit received

2) Sell one XYZ Jul 20xx $99 Put for $2.75

3) Sell one XYZ Jul 20xx $101 Call for $2.25

4) Buy one XYZ Jul 20xx $105 Call for $1.5

2) Sell one XYZ Jul 20xx $99 Put for $2.75

3) Sell one XYZ Jul 20xx $101 Call for $2.25

4) Buy one XYZ Jul 20xx $105 Call for $1.5

2) Sell one XYZ Jul 20xx $99 Put for $2.75

3) Sell one XYZ Jul 20xx $101 Call for $2.25

4) Buy one XYZ Jul 20xx $105 Call for $1.5

· The maximum profit of $1.5 if XYZ is between $99 and $101 at expiration

· The breakeven points at $97.5 and $102.5

If the underlying is close to or between strike B and 最完整Iron Condor铁秃鹰期权交易指南 strike C, then the short options carry more weight in determining the net value of the spread. Therefore, the spread will increase in 最完整Iron Condor铁秃鹰期权交易指南 value if volatility deflates.

Iron Condors

Writing in-the-money calls is a good strategy to use if the options trader is looking to earn a consistent moderate rate of return.

Iron Condor Construction
Sell 1 OTM Put
Buy 1 OTM Put (Lower Strike)
Sell 1 OTM Call
Buy 1 OTM Call (Higher Strike)

Profit is limited to the premium earned as the writer of the call option will not be able to profit from a rise in the price of the underlying security.

Offers more downside protection as premiums collected are higher than writing out-of-the-money calls.

Limited profit

As the striking price is lower than the price paid for the underlying stock, any upward price movement will not benefit the call writer since he has agreed to sell the shares to the option holder at the lower striking price. Therefore, the maximum gain to be made writing in-the-money calls is limited to the time value of the premium at the time of 最完整Iron Condor铁秃鹰期权交易指南 最完整Iron Condor铁秃鹰期权交易指南 writing the call.

The formula for calculating maximum profit is given below:

  • Max Profit = Net Premium Received - Commissions Paid
  • Max Profit Achieved When Price of Underlying is in between Strike Prices of the Short Put and the Short Call

Greater downside protection

As the premiums received upon writing in-the-money calls is higher than writing out-of-the-money calls, downside protection is greater as the higher premium can better offset the paper loss should the stock price go down.

The formula for calculating maximum loss is given below:

  • Max Loss = Strike 最完整Iron Condor铁秃鹰期权交易指南 Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid
  • Max Loss Occurs When Price of Underlying >= Strike Price of Long Call OR Price of Underlying

Breakeven Point(s)

There are 2 break-even points for the iron condor position. The breakeven points can be calculated using the following formulae.

  • Upper Breakeven Point = Strike Price of Short Call + Net 最完整Iron Condor铁秃鹰期权交易指南 Premium Received
  • Lower Breakeven Point = Strike Price of Short Put - Net Premium Received

Example

Suppose the stock XYZ is currently trading at $50 in June. An options trader decides to write a JUL 45 covered call for $7. He pays $5000 for the 100 shares of XYZ and receives $700 in premium giving a net investment of $4300.

The stock then rallies to $55 at expiration and the call gets assigned. As per the options contract, the trader has to sell the 100 shares of XYZ at the striking price of $45 and so he receives $4500 for the shares sold. Since his original investment is $4300, his net profit for the entire trade is only $200.

However, should the stock price go down to $45 instead, he still makes a profit since the $700 in premiums received more than offset the $500 in paper loss of the 100 shares he held which has lost $5 a share in value.

At $45, the call most likely will not get assigned since there is no intrinsic value left in the option. Since the shares did not get called away, the call writer can either sell the shares for $4500 giving him a net profit of $200 最完整Iron Condor铁秃鹰期权交易指南 for the entire trade or write another call against the shares held.

Note: While we have covered the use of this strategy with reference to stock options, the iron condor is equally applicable using ETF options, index options as well as options on futures.

Commissions

Commission charges can make a significant impact to overall profit or loss when implementing option spreads strategies. Their effect is even more pronounced for the iron condor as there are 4 legs involved in this trade compared to simpler strategies like the vertical spreads which have only 2 legs.

If you make multi-legged options trades frequently, you should check out the brokerage firm OptionsHouse.com where they charge a low fee of only $0.15 per contract (+$4.95 per trade).

Similar Strategies

The following strategies are similar to the iron condor in that they are also low volatility strategies that have limited profit potential and limited risk.

Managing Iron Condors

The internet has some incredible resources on trading and one that everyone should look into is ProjectFinance on YouTube. Today I want to summarize one of their video's on managing Iron Condors. The full video is worth a watch especially to see how volatility changes what works/doesn't work along with how different managing winners and losers can be to your actual P/L.

Used SPY from 2007-2017

Sold 1 iron condor each day

Closest to 45 最完整Iron Condor铁秃鹰期权交易指南 DTE (not using weeklies)

Short leg 0.16 delta, Long leg 0.05 Delta

Tested managing winners at: expiration, 25%, 50%, and 75% 最完整Iron Condor铁秃鹰期权交易指南 max profit

Tested managing losers at: expiration, 100%, 200%, and 300% max loss (i.e. a 100% max loss on an iron condor that gave a $1.00 credit would be closed if it hits a $2.00 debit)

Tested multiple entry points based on VIX values (under 14, 14-17.5, 17.5-23.5, and over 23.5)

Managing at 25% max profit does not generate enough P/L to offset commissions on a 4-leg trade

When not taking VIX into account they found managing winners 50% and 75% max profit and letting losers run to expiration generated the highest P/L

However, VIX over 23.5 dramatically outperformed all other entry points for P/L when adjusted for time 最完整Iron Condor铁秃鹰期权交易指南 in trade

Highest P/L was seen with VIX over 23.5 and winners managed at 75% max profit, and losers at 100% loss

50% and 75% also worked very well when paired with 200% max loss with VIX over 23.5

While other levels of VIX could work they were far outpaced -- interestingly, the second highest bucket for VIX was the worst performer regardless of management strategy implying that volatility needs to be very high instead of just moderately high

Low volatility plays only worked well when holding to expiration with losers (managing low VIX plays at 100% loss was a consistently poor strategy)

Used SPY from 2007-2017

Sold 1 iron condor each day (2007-2017)

Closest to 45 DTE (not using weeklies)

Short leg 0.30 delta, Long leg 0.16 Delta

Tested managing winners at: expiration, 25%, 50%, and 75% max profit

Tested managing losers at: expiration, 100%, and 200% max loss (300% max loss wasn't possible on most trades)

Tested multiple entry points based on VIX values (under 14, 14-17.5, 17.5-23.5, and over 23.5)

Need to be managed earlier than 0.16 delta Iron Condors

Managing winners at 25% was the best trade even with commissions but only when we don't factor in volatility

When 最完整Iron Condor铁秃鹰期权交易指南 separating by VIX levels, over 23.5 was absolutely necessary to have consistently good results

With VIX over 23.5 the highest P/L was 最完整Iron Condor铁秃鹰期权交易指南 seen with managing winners at 50% max profit and letting them go until expiration if losing

All other VIX levels returned very poor P/L with many being negative

This means that high VIX is needed and propped up all of the other bad trades when it was 最完整Iron Condor铁秃鹰期权交易指南 first tested without volatility

P/L numbers in the high VIX levels were not significantly different than the 0.16 delta study when adjusting for time in trade

There wasn't a huge difference in P/L for either strategy when VIX was over 23.5

Wider Iron Condors should be 最完整Iron Condor铁秃鹰期权交易指南 managed at 50-75% max profit and losers cut at 100% loss relative to credit received when placed in moderate to high volatility

Lower volatility conditions should have Iron Condors managed at 50% max profit or held until expiration if losing

Aggressive (0.30 delta) iron condors need high volatility (VIX over 23.5) to be consistently successful

**This is just one (albeit large) study. Other instruments or time periods may show different tendencies so always take information with a grain of salt. I highly recommend watching the video. I'm sure there's some 最完整Iron Condor铁秃鹰期权交易指南 insight I've missed with how much information is there**

iron condor

There are several different types of option spreads such as verticals, calendars, butterfly, strangles and iron condor. They all have different ways of generating a profit and used in different trading scenarios. This article, however, 最完整Iron Condor铁秃鹰期权交易指南 最完整Iron Condor铁秃鹰期权交易指南 is going to explain the benefits and when to use one of these option spreads, the iron condor.

First, in my opinion the iron condor should only be used under the following conditions.

When the volatility (VIX) is below 40
VIX is channelling between 25 or 40
Credit of $0.50 or greater ($0.70 is ideal)

Second, the iron condor will produce money faster than other option spreads but carries more risk. Since you are selling this spread, it is a credit spread and therefore receive your money when you place your trade. However, since the iron condor has a low and high trading range, the stock can move out of this range causing the trader to lose money and either will have to close out the trade or make adjustments. This is less likely to happen if the volatility is below 40 and the trade is made and held during non news changing events for that stock 最完整Iron Condor铁秃鹰期权交易指南 or index.

Third, the condor can be used on any stock or index however, I recommend using it with high volume traded indexes such as the DIA or SPY. Since these indexes have very high volume it is much easier to find the desired trading range. If the stock is not highly traded then it may be more difficult to set up your trade. For example, you want to purchase a 27 call, but only a 20 or 30 is available. When this is a case, it will make it more difficult to meet the credit spread of $0.50 or greater.

Finally, the iron condor makes a great trading strategy when combined with other monthly trading strategies such as a combination of another condor used on a different stock or index or a different but complimentary 最完整Iron Condor铁秃鹰期权交易指南 spread to the condor. This combination makes a nice options portfolio and will be easy to manage and allow less time to monitor.