9 Weeks to Better Options Trading: Iron Condors
Veteran options trader Steve Smith breaks down iron condors.
Options traders often want to make bets on volatility. However, doing so can entail taking on inordinate downside risk. To limit this downside risk, we can use combinations of spreads, the most common of which is the iron condor.
While iron condors can be bought or sold, they are typically sold for a credit to take advantage of a stock or index that is in a trading range. They benefits from both time decay and a decline in implied volatility. Selling an iron condor is a bet that the underlying shares will remain in a limited range and have an accompanying low or decrease in volatility. If you were buy an iron condor, you are banking on a break outside the range that is defined by the condor's outer strikes, or “wings.”
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