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Four Reasons Why Iron Condors May Be Overrated


The condor and the iron condor are essentially equivalent.


Dear Professor Wolfinger,

What's the benefit of selling iron condors (bull put spread/bear call spread) over buying condors (bear spread/bull spread -- puts or calls, but not both)?

The profit/loss graphs of the IC and the condor are identical. Clearly, with the IC, the cash remains in your account and is increased by the premium collected rather than paying for the condor and collecting a profit (hopefully) later on. But the interest earned on the funds -- at least presently -- negligible. Also, it appears that there might be a slightly greater premium for an IC over a condor, but I don't have enough of a statistical sample to draw that conclusion.

So, why are iron condors so popular while non-iron condors are rarely mentioned?

Minyan CBF

Dear Minyan CBF,

You raise a very good point.

If a 10-point condor can be bought for a $7 debit, then the iron condor can be bought for a net credit of $3 (a little less when interest rates are high enough for the cost of carry to be affected).

1. It's true that iron condors receive a great deal of attention. One big reason for that: It's the strategy of choice for hype-sters who want people who know nothing about options to pay them to manage a portfolio of iron condors. Money management is a profitable business as the managers keep 20% of all profits with no risk of loss. Of course, one must be licensed to manage other people's money and I have no idea whether that rule is obeyed.

Others offer to sell trade recommendations to newbies for far more cash than the information is worth. Ads that promise to "generate a steady monthly income" and trade with a success rate of between 80-95% attract suckers... um, customers. It all sounds so attractive, and the messages come with a hard sell that apparently works.

I don't know how many people pay high fees to have someone recommend iron-condor trades, but there are plenty of them. Some of these people run a legitimate business; they're careful in choosing their trades and manage risk with skill. But it's difficult to know whom you're hiring when you go that route.

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