Iron Condor Trade

With the recent increase in volatility in the market, the iron condor is beginning to look to be a more attractive trade again. We recently have seen the VIX, or implied volatility of the SPX, go from being down around 12, up to 17 earlier today. The iron condor involves selling an out of the money call vertical and an out of the money put vertical, thereby bracketing the market in a wide area that you hope for the underlying to trade in. For instance, in the SPX, currently, you could sell the October 2005 calls and buy the October 2015 calls, and then you could also sell the 1890 puts in the October monthly and buy the 1880 puts. This would be for around a $3 credit. Then, as long as over the course of the next two weeks the SPX stays within the range of 2005 and 1890, you will be profitable. By selling the iron condor now you’re getting paid a little bit more than you would have even a couple of weeks ago for the same time to expiration, because the increase in volatility has caused an increase in the price of the shorts that you are selling. Always keep an eye on the downside, though, as the market is currently in a bit of a down trend. Be ready to buy protective long puts or even remove the put vertical if the market moves down substantially.

Mark Fenton
Senior Mentor