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Well done video I seen seven iron condor video which was okay this one was far better than the recent ones that came out this year. Now it makes sense why my iron condor profit went down even though it didn't hit the lower break even price yet. I'm being honest really great video keep up the good work.
Hi Chris, What is the risk of option getting exercised when the stock price ends up between vertical PUT spread Say for e.g., NFLX is currently at $320 and if we have a PUT spread of - Sell Put at $300 and Buy PUT of $290 and at the expiration of NFLX ends up at $295. What is our liability in this case - Are we suppose to Buy 100 shares of NFLX at $300. That means do we need $30000 cash upfront to cover.
Hi Akbar, Yes, if the stock price is at $295 and you hold the options through expiration (you don't have to do this -- you can close the position if you haven't already been assigned on the short 300 put) then you will automatically purchase 100 shares of NFLX at $300/share. If you don't have $30,000 in your account, you'll have to close/sell the shares immediately, otherwise, your brokerage firm will forcefully close it for you. I hope this helps! Let me know if you have any other questions. -Chris
Far as I know, Short Iron condor is same as Long Condor (consist of 2 vertical credit speads) in the viewpoint of profitability, so what are their main differences? Under what situation to choose which?
Assuming you gain a max profit of $121 about 64% of the time (holding till expiration) and risk losing $379 wouldn't you lose money in the long run if you set it and forget it? Can managing the iron condor avoid this? More importantly, can you still be largely profitable after somehow managing the trade?
Since the buy call strike price is higher than the sell call strike price and the stock price typically increase gradually, what should the trader do if the stock reaches the sell call strike price and the sell call is executed? Does he need to buy 100 shares at the time in order to sell to the sell call buyer?
For a short iron condor (when you sell an iron condor as explained in this video) the breakevens are: Short call strike price + Premium Received Short put strike price - Premium Received
Why did you choose those specific the calls and puts? Why not create a wider range to increase the probability of winning? Or does that lower your profits too much?
Exactly. If you sell options really far away from the stock price, the option prices will be lower because they have a very very high probability of expiring worthless, which means there's not a lot of demand for people to buy them.
No because you don’t have a profit if you experience the max loss. The max loss factors in the amount collected when entering the trade. If you collected $200 for the iron condor and it’s worth $500 at expiration your loss is $300
I would say European options are safer because there's no early assignment risk. Even though being assigned on a short option doesn't really change your risk profile, knowing that you can't be assigned on any short options makes the strategy "safer" because you can focus on position management and don't have to make adjustments after being unexpectedly assigned on a short option.
@@projectfinance ya that makes sense, but my brokerage shows me a special message when placing an order on spx, weird, i completely forgot about being assigned, what happens if we get assigned early and we dont have money to cover the shares?
Underlying assets under Americian style may be subjected to execution before the expiration date, so you have to monitor it and cannot sleep until expiration past.
Has anyone mentioned on the EXAMPLE GONE WRONG. How the put option about was wrong? Said both the call and put spreads were $4, but it was $6 for the put. Otherwise dug this, thank you
Sell the call with a delta near 0.30, sell the put with a delta near -0.30, buy a call option at a higher strike than the call you sold, buy a put option at a lower strike than the put you sold.
It is higher risk than reward, but also a high probability of making money. The risk/reward ratio itself does not make it a "good" or "bad" strategy. The management is much more important.
@@projectfinance Yeah I take your point about the probability of a successful trade being higher. I have spoken face to face with some pro traders that work for investment banks and they have said a risk reward of 3:1 is required in trading generally not talking specifically about Options. They actually said they get a lot of trades wrong and so they can get 1 in 4 trades wrong and still breakeven!!!!! Their goal is to have a wining percentage of 33% or 1 in 3 go right and hit the profit target as this means at a 3:1 risk/reward ration the bank is making money. Amazing as most retail traders feel that they need to get most trades right which is the opposite to the pro's.
An iron condor loses money if the stock moves too far in either direction, but a spread loses money only if the stock moves too far in one direction. Wouldn't that make a spread the better strategy?
Depends on the market conditions. In the iron condor one side mitigates the potential losses from the other if the stock moves outside the range. At the end of the day, no matter what option strategy you use, you still need to get something right about the future -- whether it's direction or volatility and/or both.
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Exceptionally clear and accurate explanation!
Thanks!
Best explanation so far
thanks for showing how to execute this on platform, very helpful
Very well explained , keep posting , thanks
Thanks. Good, clearly explained info.
You're welcome, Steve! Thanks for the comment and I'm glad you found the video to be valuable.
-Chris
Well done video I seen seven iron condor video which was okay this one was far better than the recent ones that came out this year. Now it makes sense why my iron condor profit went down even though it didn't hit the lower break even price yet. I'm being honest really great video keep up the good work.
Studied and came back to this video, and I completely understand it. Awesome!
I love iron flys
Excellent!
What is the loss if it closes in between the sell and call or the sell and put?
Hi Chris,
What is the risk of option getting exercised when the stock price ends up between vertical PUT spread
Say for e.g., NFLX is currently at $320 and if we have a PUT spread of - Sell Put at $300 and Buy PUT of $290 and at the expiration of NFLX ends up at $295. What is our liability in this case - Are we suppose to Buy 100 shares of NFLX at $300. That means do we need $30000 cash upfront to cover.
Hi Akbar,
Yes, if the stock price is at $295 and you hold the options through expiration (you don't have to do this -- you can close the position if you haven't already been assigned on the short 300 put) then you will automatically purchase 100 shares of NFLX at $300/share.
If you don't have $30,000 in your account, you'll have to close/sell the shares immediately, otherwise, your brokerage firm will forcefully close it for you.
I hope this helps! Let me know if you have any other questions.
-Chris
Thank you Chris for the explanation
sorry if this is a stupid question but what if the stock expires between the call or put spreads?
Far as I know, Short Iron condor is same as Long Condor (consist of 2 vertical credit speads) in the viewpoint of profitability, so what are their main differences? Under what situation to choose which?
Assuming you gain a max profit of $121 about 64% of the time (holding till expiration) and risk losing $379 wouldn't you lose money in the long run if you set it and forget it? Can managing the iron condor avoid this? More importantly, can you still be largely profitable after somehow managing the trade?
Since the buy call strike price is higher than the sell call strike price and the stock price typically increase gradually, what should the trader do if the stock reaches the sell call strike price and the sell call is executed? Does he need to buy 100 shares at the time in order to sell to the sell call buyer?
hello , can you please mention how to calculate the upper breakeven level and the lower breakeven level for iron condor ?
For a short iron condor (when you sell an iron condor as explained in this video) the breakevens are:
Short call strike price + Premium Received
Short put strike price - Premium Received
@@projectfinance thanks alot
You are the best
Why did you choose those specific the calls and puts? Why not create a wider range to increase the probability of winning? Or does that lower your profits too much?
Exactly. If you sell options really far away from the stock price, the option prices will be lower because they have a very very high probability of expiring worthless, which means there's not a lot of demand for people to buy them.
Could someone explain how P50 can be higher than POP?
If you "lose the max" on a short iron condor do you have to return your income on that trade?
No because you don’t have a profit if you experience the max loss. The max loss factors in the amount collected when entering the trade. If you collected $200 for the iron condor and it’s worth $500 at expiration your loss is $300
great info
Thanks James!
Is an iron condor on european style.options risker than american style options if so why?
I would say European options are safer because there's no early assignment risk. Even though being assigned on a short option doesn't really change your risk profile, knowing that you can't be assigned on any short options makes the strategy "safer" because you can focus on position management and don't have to make adjustments after being unexpectedly assigned on a short option.
@@projectfinance ya that makes sense, but my brokerage shows me a special message when placing an order on spx, weird, i completely forgot about being assigned, what happens if we get assigned early and we dont have money to cover the shares?
Underlying assets under Americian style may be subjected to execution before the expiration date, so you have to monitor it and cannot sleep until expiration past.
Has anyone mentioned on the EXAMPLE GONE WRONG. How the put option about was wrong? Said both the call and put spreads were $4, but it was $6 for the put. Otherwise dug this, thank you
How do you create a delta 30 iron condor?
Sell the call with a delta near 0.30, sell the put with a delta near -0.30, buy a call option at a higher strike than the call you sold, buy a put option at a lower strike than the put you sold.
The Risk / Reward ratios are not in favor of the trader using this strategy.
It is higher risk than reward, but also a high probability of making money. The risk/reward ratio itself does not make it a "good" or "bad" strategy. The management is much more important.
@@projectfinance Yeah I take your point about the probability of a successful trade being higher. I have spoken face to face with some pro traders that work for investment banks and they have said a risk reward of 3:1 is required in trading generally not talking specifically about Options. They actually said they get a lot of trades wrong and so they can get 1 in 4 trades wrong and still breakeven!!!!! Their goal is to have a wining percentage of 33% or 1 in 3 go right and hit the profit target as this means at a 3:1 risk/reward ration the bank is making money. Amazing as most retail traders feel that they need to get most trades right which is the opposite to the pro's.
@@LamboHUA bcz the bank traders trade that way does not mean they're correct n other traders are wrong... it's about managing money and the risk
But probability wise.
An iron condor loses money if the stock moves too far in either direction, but a spread loses money only if the stock moves too far in one direction. Wouldn't that make a spread the better strategy?
Depends on the market conditions. In the iron condor one side mitigates the potential losses from the other if the stock moves outside the range. At the end of the day, no matter what option strategy you use, you still need to get something right about the future -- whether it's direction or volatility and/or both.