from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

1-800-803-4595

Iron Condor Spread

The (Short) Iron Condor Spread is my all-time favorite spread when I think the market will trade within a fairly small range for the near future.  It is a little complicated, but worth the effort to learn.

With a name like this, it's got to be a great spread.  I know what a condor is, but I wouldn't recognize a short one if I saw it, and I've never seen an iron one - all the condors I know have feathers.

If you really want to impress your friends, you can tell them you own a Short Iron Condor Spread, or wow them even more by saying you also are long a strangle and short another strangle which is more in the money. Or you can say you have a bear call spread and a bull put spread, or else a short vertical call spread and a short vertical put spread.  They all mean the same thing, but who really cares what they call them?

The Iron Condor spread involves the simultaneous purchase of a put and a call for the same expiration month (usually only one or two months of remaining life), and the sale of a put and call for that same month but at a strike price which is closer the to current stock price than the options you purchased.

The result is that you end up with two vertical spreads, one of which uses calls at the higher strikes (called a bear call spread) and puts at the lower strikes (called a bull put spread) with all positions in the same expiration month. The number of call spreads is equal to the number of put spreads, and the increment between the strike prices is the same for both spreads.

Typically, an iron condor spread is sold rather than bought (so it should really be called a short iron condor spread).  Since both the puts and calls which are sold have a higher value than those being purchased, it is a credit spread.  It is placed when the investor believes the underlying stock will end up inside of a certain range of prices.  If it does, all four options will expire worthless and the investor will pocket the original credit she received when originally placing the spread.

The iron condor is so named due to the shape of the profit/loss graph, which loosely resembles a large-bodied bird.  In keeping with this analogy, traders often refer to the inner (short) options collectively as the "body" and the outer (long) options as the "wings".

The word Iron is used (for no apparent reason that I have been able to find) to describe a spread where one part of the overall position is a spread at strike prices above the current price of the underlying stock and the other part of the overall position is at strikes below the current price of the stock.  An iron butterfly is another example of using iron in this manner.

Six reasons to love Short Iron Condor Spreads:

  1.     The stock can go up, down, or stay flat, and you can still make a profit.
  2.     Exceptional profits are possible every month
  3.     Extreme flexibility is possible in creating a comfortable risk level
  4.     You can precisely determine your maximum potential loss (or gain) before you make the investment
  5.     If the stock closes anywhere in a broad range at expiration, a guaranteed pre-determined profit is made
  6.     You only have to wait a maximum of 30 or 60 days to learn how much you have made or lost.

One reason not to like Short Iron Condor Spreads:

  1. You can lose your entire investment in less than 60 days.

For this reason, the best way to carry out the iron condor strategy is to be willing to take a small loss at times because it eliminates the possibility of incurring a larger loss, and only investing a portion of  your capital at one time.  Theoretically, if you only risk half your capital at one time, you will never run out of money to invest.

 

Terry's Tips Stock Options Trading Blog

September 23, 2018

Consider Buying the Post-Earnings Dip in Adobe Systems (ADBE)

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

Terry

Consider Buying the Post-Earnings Dip in Adobe Systems (ADBE)

Adobe’s stock price has seen a steady rise over the last few years, and from both a technical and fundamental standpoint, there is a strong case to be made that it will continue.  These following two articles discuss the recent earnings report and where the stock may go from here - Adobe: Stock Marches Forward With Another Record Quarter and Should You Buy Adobe Systems at Its All-Time High?.  As well, there have been several price target upgrades as of late and a few of the more bullish analysts think the stock can even cross above the $300 price point.

September 15, 2018

Has Netflix (NFLX) Found A Bottom?

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.  The actual portfolio that Terry’s Tips carries out with these plays we send to you each week has gained 98.5% so far this year.  We started out 2018 with $5000 in the portfolio and withdrew that amount in June so that subscribers who mirrored it in their own account or had trades executed for them with the free Auto-Trade service at thinkorswim have almost $5000 left and it is entirely profits for them.

Terry

Has Netflix (NFLX) Found A Bottom?

Despite a recent correction, market sentiment towards Netflix stock remains positive while certain analysts see a notable upside from current levels.  Take a look at this recent article posted on Investopedia that states a 30% rally could be in the cards for NFLX and the following article posted on Seeking Alpha that builds a strong case for remaining bullish.

September 10, 2018

Mastercard (MA) Expected to Continue the Steady Rise

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

The actual Terry’s Tips portfolio which trades essentially every weekly play that we send to you has gained 91% so far this year (after paying all commissions, of course).  The portfolio started out the year with $5000, and on June 15, 2018, we withdrew $5000 from the portfolio so that all subscribers who followed it would all their money back and be playing with pure profits.  The portfolio is now worth $4552.

I especially like this week’s idea because I like Mastercard and believe that last week’s weakness in the stock price was unwarranted.  Enjoy the full report below.

Terry

Mastercard (MA) Expected to Continue the Steady Rise

Among the list of IBD Top 50 companies Mastercard stands out as its uptrend is far steadier than any of the other companies.  These two articles suggest the stock will continue the trend – Mastercard’s Stock May Have Big Gains Ahead and Mastercard’s Strategy Suggests Further Stock Price Growth Ahead After 60% Rise.

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

Sign Up Your 2 Free Reports & Our Newsletter Now!

Sign up for Dr. Terry F Allen’s free newsletter and get immediate access to his most current report on his stock option trading strategies.

TastyWorks

Tastyworks is a new brokerage firm from the brains behind tastytrade and it is our top choice of options-friendly brokers. Their commission rates are extremely competitive - options trades are only $1 per contract to open and $0 commission to close (all options trades incur a clearing fee of $0.10 per contract). The tastyworks trading platform quickly became our favorite platform for options trading and it keeps getting better with new features released each week. Terry uses tastyworks and loves everything about them!

TD Ameritrade

This Chicago brokerage firm with the unlikely name thinkorswim, Inc. by TD Ameritrade is considered by many to be the best option-friendly broker. For openers, they have extremely good analytic software and their option trading platform is exceptional. Thinkorswim Mobile has been called the best mobile app in the industry. In 2017, TD Ameritrade received 4 stars out of 5 in the annual Barron`s* Best Online Brokers Survey. TD Ameritrade was tops as an online broker for long-term investors and for novices. The company is the only broker that receives the highest 5.0 score for research amenities among all firms participated in the ranking last year.

Member Login  |  Programs and Pricing  |  Testimonials  |  About Us  |  Legal Notices  |  Accessibility Statement  |  Privacy Policy  |  Site Map

TD Ameritrade, Inc. and Terry's Tips are separate, unaffiliated companies and are not responsible for each other’s services and products.

tastyworks, Inc. has entered into a Marketing Agreement with Terry’s Tips (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks and/or any of its affiliated companies. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastyworks does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website.

tastyworks, Inc. and Terry’s Tips are separate, unaffiliated companies and are not responsible for each other’s services and products. Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Options trading in a tastyworks account is subject to tastyworks’ review and approval. Please read Characteristics and Risks of Standardized Options before investing in options

©Copyright 2001–2018 Terry's Tips, Inc. dba Terry's Tips

Close Window

Sign up for the Terry’s Tips Free Newsletter and Receive 2 Options Strategy Reports:

or

Login to Your Existing Account Now

No Thanks

Newsletter Signup

Member Login

Enter your primary email below, and we'll send you a new password