I’ve come across iron condors a few times, but I’m struggling to grasp the concept.
Traders often discuss them, yet the explanations feel complicated. Can someone break down what an iron condor strategy is?
I’m also curious about the risks. What are the best ways to manage those risks effectively?
Iron condor works when the market stays range bound. You’re selling premium on both sides - a call spread above current price and a put spread below it. The sweet spot is when price stays between your short strikes until expiration. Manage this by setting profit targets at 25-30% of premium collected. Cut losses at 200% of premium received or when price breaks through either short strike with momentum. Time decay works in your favor, so avoid holding through high volatility events that can blow up the position fast.
Made 60% profit on three iron condors last month trading SPY weekly options.
Lost $400 on my first iron condor attempt because I didn’t understand the breakeven points.
Basically you sell a call spread and put spread at the same time. You profit when price stays between your short strikes.
Risk management is crucial - I learned to close at 50% profit and never risk more than 2% of my account per trade.
Think of it as betting the stock price will stay calm within a specific range. You collect money upfront by setting up four options trades that form a box around the current price.
The tricky part is timing your exit. When things go wrong, they go wrong fast. Exit rules matter more than entry rules with this strategy.
Watch implied volatility closely. High volatility can crush these trades even when price stays in your range.
Maximum loss occurs when price moves beyond either long strike. Risk is defined: premium received minus spread width. Monitor delta exposure and close early if underlying approaches short strikes with high volume.