Profiting From Neutral Markets with an Advanced Option Trade

Iron Condors are a fun but challenging trade to play properly. One the one hand, it gives you the chance to turn a quick profit on a very risk controlled, high probability options spread. On the other hand, things can turn bad pretty quickly if you get caught in the wrong trade. Here’s a brief guide to help make sure you keep your iron condors on the right side of every trade you make.

An iron condor is essentially two simultaneous vertical spreads with each spread on the opposite end of an underlying. You are going to sell a put, then buy a put one strike price below it, then sell a call and buy a call right above it. The key in the iron condor is to find an underlying that will not touch either of the spread’s verticals, straddling the price right in the middle of the spread. You do this by finding an underlying that is range bound in nature with low volatility and an RSI between 30 and 70 for at least a month.

A good example of an iron condor could be one I recently placed on the SPY. It’s a one month spread I sold for a credit of 220 dollars with a maximum potential risk of 780 dollars at a 56% calculated rate of success. The verticals were located at the strike price of 112 and 111 for the put spread and 117 and 118 for the call spread with the SPY trading at around 114 at the time of the trade with just over two weeks until expiration.

Why did I make this trade? Because on the SPY, implied volatility is at an all time low at .1912 with RSI having remained between a steady 40 and 70 for the past several months, and no dramatic swing highs or swing lows in recent price history. The MACD is flattening, showing a lack of movement and momentum on the underlying in either direction. Because of this, I think it’s a fairly safe trade to estimate that the SPY will remain range bound between 112 and 117 for the next two weeks.

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