July 16, 2011
Iron Condor – Monthly Paychecks From Wall Street
To generate consistent cash-flow from the trading markets with out having to ‘guess’ or know near term market direction, there are a variety of different option techniques that option investors can use.
Some of these different strategies include the calendar spread, the butterfly spread, the diagonal spread, the iron condor , and the vertical Spread, also known as the credit spread.
In actuality, the vertical spread can be discovered inside found many of the previously talked about strategies. It is a core foundational trade to each of their makeup. Take for instance the iron condor. This trade is constructed from two separate vertical spreads – a put credit spread and a call credit spread – each positioned above and below where the underlying stock is currently trading at.
The butterfly position is also comprised of vertical spreads. The lower half portion of the butterfly spread is simply a vertical spread – as is the top half. Same goes with the iron butterfly. This trade also is built from verticals – a call vertical and a put vertical.
These positions can be constructed using either call options as well as put options. These may have different names attached to them to help differentiate them – such as bull put spread, bear call spread, etc – however – they are all vertical spreads.
Following is an illustration of a bull put vertical spread…
Sell 1 ABC Stock 75 Put Option Buy 1 ABC Stock 70 Put Option
Again, this vertical spread is a bullish position – where the opinion of the option seller is that ABC will be moving higher over the shorter term, or staying put in it’s general area on the price chart.
Some might think that because we are using calls this should be a bullish position, however this is not the case since we are selling the option that is closer to money, hoping to capture the time premium in the event that the stock moves down.
If the trader placing this trade is correct in his prediction and ABC does in fact rise or stay where it is trading at, this position will be a winning trade and the premium that was collected when the trade was first put on will remain in the traders account as profit. And don’t forget, that this trade can be combined on both sides of the market to create an iron condor option trade.
Want to find out more about how to trade the iron condor for monthly income, then visit Ted Nino’s site on how to trade this strategy as well as the iron condor for monthly cashflow.
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