The further out in time you go, the more you’re risking an adverse event that will challenge your thesis.ĭo : Monitor the stock’s price closely for a change in trend. That’s a common amount of time to take advantage of premium collection strategies. At 14 days to expiration, theta-decay ramps up. A particular moving average, a flat line, etc.ĭon’t : Go farther out in time than you need to. Short Iron Condors: Do’s and Don’ts Do : Enter during periods of high volatility, expecting that volatility to soon subsideĭon’t : Enter if you have a directional view of the underlying stockĭo : Select meaningful strike prices. Ride the waves of market momentum with two actionable trade ideas designed to capture technical break outs and break downs - delivered to your inbox every week. Ready to start trading the technicals? Try Rebel Weekly. Short iron condors are powerful tools for premium collection, but there are a few things you should keep in mind before deploying this highly versatile option strategy. Because the strategy uses both long and short calls and puts, the strategy can be morphed into a long call, a long put, a singular credit spread, and many other strategic variations. Short iron condors are also highly versatile, making them a popular strategy for advanced traders. The longer the underlying stock remains between the strikes, the more time-decay will take effect, draining the extrinsic value from the two credit spread components, thereby helping your condor soar. This is where the strategy will achieve its max gain. If you’re selling an iron condor, you are predicting that the price of the underlying stock will remain between the two short strikes. The closer an option gets to expiration, the more the option decays - and the more profitable your short iron condor becomes.Ī short iron condor is a combination of two vertical credit spreads - one using puts, and one using calls. Time decay depicted over the course of 100 days. Short iron condors benefit from price stagnation, a decrease in volatility, and the passage of time.
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