Condors

A Volatility-Based Approach to The Iron Condor Strategy (14:07)

Posted on September 15, 2020 - 2:10pm

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 14, No. 7 on April 15, 2005.

An “iron condor” (also sometimes simply called a “condor”) is the name applied to a rather basic strategy that has many adherents. In this article, we’ll define the strategy and give examples, but we also want to look at a possible way to improve upon the strategy by using a new product – $VIX options – which should begin trading soon.

The iron condor strategy is a fairly simple one – the sale of credit spreads both above and below the current (index) market price. Risk and reward are both limited, but rewards are more probable than the risks, assuming that all options are out of the money initially. Specifically, four striking prices are generally used, and thus the spread requires the payment of four commissions – making the strategy viable only for accounts with low commission costs.

Condors and Credit Spreads: “Trouble?” or “Worth The Trouble?” (16:07)

Posted on October 28, 2019 - 10:14am

By Lawrence G. McMillan

This article was originally published in The Option Strategist Newsletter Volume 16, No. 7 on April 12, 2007.

This article reflects some new research (or, more appropriately, backtesting) that we have done regarding credit spread strategies. These strategies are very popular at the current time with a large number of web sites and advisory services. However, it seems that most people don’t really understand the risk that they’re taking in this strategy. Many stories are now surfacing about condor spread accounts with losses of 50%, 60% and more. Most of these were caused by being heavily invested in a month when the underlying made a maximum move.

For completeness, let’s start at the beginning. A credit spread involves buying one option and (simultaneously) selling another option – where the two options expire in the same month, but have different strikes. If the option that is sold is trading at a higher price than the option that is bought, a credit is taken in when the spread is established. Hence it is a credit spread.

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