Lecture on Trading Iron Condors

Introduction

• Explanation of options in the Netflix option chain
  • Out-of-the-money calls and puts
  • Time decay impacts options, leading them toward zero as they reach expiration
  • Example given: 90 strike put pricing change over time

Understanding Iron Condors

• Iron Condor as a strategy to capitalize on time decay
  • Selling out-of-the-money calls and puts
  • Buying further out-of-the-money calls and puts for protection
  • Goal: stocks remain within the sold option strike prices so the options expire worthless

Example of Iron Condor Strategy

• Stock XYZ is trading at $75
  • Sell 85 call and 65 put for $2 each
  • Buy 90 call and 60 put for $1 each
  • Aim: stock price stays within the strikes
  • Net profit calculation if stock stays within range
    • Profit from short options: $400
    • Loss from long options: $200
    • Total profit: $200

Risk Management

• Potential losses if stock moves outside range
  • Example: stock moves to $96
  • Profit on put side: $100
  • Loss on call side: $900 reduced by $500 gain from long call
  • Total net loss: $300
  • Maximum loss capped at $300 regardless of stock movement

Monitoring and Executing Iron Condors

• Treat Iron Condor as a single trade
• Example with Facebook trade
  • Sold Iron Condor at $1.12, trading at $0.82
  • Max profit is the net selling price, loss calculated by strike width minus entry price
  • Breakeven points are calculated using entry price and strike width

Platform Tools and Trade Execution

• Platforms automatically calculate important metrics for Iron Condors
• Example of setting up an Iron Condor on Tesla
  • Utilizing probability or Delta for strike selection
  • Adjusting strikes for risk-reward balance

Conclusion

• Variations and customizations in Iron Condor trades
• Encouragement to explore further learning resources and trading tools
• Call to action: like, subscribe, join email list for more resources on trading concepts