Lecture Notes: Iron Condors Trading Strategy

Introduction to Iron Condors

• Definition: A delta-neutral options strategy involving:
  • Short out-of-the-money put spread
  • Short out-of-the-money call spread
• Difference from Condor: Iron Condor uses all out-of-the-money options, unlike traditional Condors.
• Objective: To capitalize on high Implied Volatility (IV) by selling premium.

Strategy Setup

• Target Range: Sell options around 16 to 30 Delta.
• Spread Width: Depends on capital and risk tolerance.
• Premium Collection: Aim to collect about one-third of the width of the strikes.
  • Example: For a $10 wide spread, target $3 in premium.

Risk and Management

• Risk Considerations:
  • Compare adding contracts versus widening spreads.
  • Be mindful of dynamic buying power, especially in futures contracts.
• Profit Targets: Manage positions at 25% to 50% of maximum profit.

Futures Considerations

• With futures, utilize span margin for more efficient capital use.
• Be aware of changes in buying power due to price movement, volatility, or time.

Management Techniques

• Position Management:
  • Hold positions longer due to slower movement.
  • Consider rolling up/down untested sides to adjust risk.
• Rolling Strategy:
  • Roll untested side for minimal Delta adjustment.
  • Goal: Exit at a scratch or small profit.

Spread Width vs. Contract Quantity

• Wider spreads often have lower potential for max loss realization.
• Risk of max loss decreases with wider spreads.
• Evaluate whether to up contracts or widen spreads based on Delta of long options.

Conclusion

• Wider Iron Condors in high IV environments offer better risk management.
• Avoid moving narrow spreads closer to stock price.
• Consider the Delta of options not just the width when setting up spreads.

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This concludes the segment on Iron Condors. Future sessions will cover additional strategies. Remember, the goal is to maintain a neutral directional assumption while managing risks effectively.