Do you know even if the stock price doesn't move, you can still profit by trading options?
If you combine selling Put Spread and Call Spread options, you can define a low-risk delta neutral trade.
Today, SlashTraders will show you how to use the Options Scanner to find high probability and high-profit Iron Condor options entry points. So you can trade neutral options strategies that work.
What Is an Iron Condor?
An Iron Condor works by selling a Put Spread and a Call Spread to define a range you can profit from. As long as the underlying price does not exceed or drop below the strike prices of Put and Call before expiration the four options contracts will depreciate in value and we profit as an option seller.
Let's recall the profit analyses of selling a Put Spread and a Call Spread. We receive a premium when we sell the Bear Call Spread. If the underlying price doesn't increase, the Call Spread value will depreciate and we earn a profit.
But if the stock price increases beyond the Call strike, the maximum loss is the width of the Vertical Spread times 100 minus premium.
We also receive a premium when we sell a Bull Put Spread option. If the underlying price doesn't drop, the Put Vertical Spread will depreciate in value and we earn a profit.
But if the stock price decreases below the Put strike, the maximum loss is also the width of Spread times 100 minus premium.
When we combine selling a Call Spread and a Put Spread we get an Iron Condor. The Put Spread defines the lower boundary of the price movement. And the Call Spread defines the upper boundary of the price movement.
If the underlying stock price doesn't move beyond the boundaries, the Iron Condor strategy will be profitable. The maximum loss is also capped if we are wrong.
Maximum loss of an Iron Condor = width of the Vertical Spread strikes x 100 - premium collected
What Is the Difference Between Iron Condor and Strangle?
Even though both the Iron Condor and the Strangle are delta-neutral strategies, but they have different profit analyses.
By comparing the profit analyses of the strategies, we see both neutral options strategies profit from the lack of price movement.
While the Iron Condor has a limited maximum loss, the Strangle has unlimited losses if the underlying price move beyond the Put and Call strike prices.
When an Iron Condor loses, we can roll up or roll down the Vertical Spreads to repair the Iron Condor.
When the Strangle is losing, we can roll the options to the future to repaire the Strangle.
When to Use Iron Condors?
When selling Iron Condors, we want both theta and vega to depreciate the options prices, so we can sell high price Iron Condors to open, and buy low price Iron Condors to close.
Theta is the changes to options value with respect to changes in time.
From our experience, selling OTM options with more than 30 days to expiration have a predictable time value decay. So we can be patient and earn a profit as time passes without much price fluctuation.
Gamma is the changes to delta with respect to changes in stock price. It is also the acceleration to options prices with respect to changes in stock price.
Gamma grows when the options are close to expiration, leading to big fluctuations in options value. So no matter our Iron Condor setup is profitable or not, we prefer to close the trade or roll it to the next month before 14 days to expiration, to reduce gamma risks.
Vega is the changes to options value with respect to changes in IV.
Since we want to sell high and buy low, we need to sell to open at high IV, then buy to close when vega causes the option's value to decay at low IV.
We also need to find underlying opportunities less prone to large fluctuations. We can do that by picking stocks with high market capitalisation to reduce the risk of manipulation.
Options Scanner Settings to Find the Best Iron Condor Stocks
Options Scanner is designed to find high probability and high return Iron Condors in seconds. Here are some tips to use the filtering function to find the best Iron Condor entry points.
- We want to choose opportunities with greater than 30 DTE to get the safest theta decay and less gamma.
- We can filter IV Perc >67% to find opportunities that have a high chance of contracting IV and vega in our favour.
- By choosing Market Cap ($B) larger than 10 billion, we avoid choosing stocks that can get manipulated and explode like AMC.
- A good idea is to eliminate stocks with depressed price movement, or in Squeeze, because IV will expand soon after.
- We should also avoid underlying that have an upcoming Earnings Date in 30 days to reduce the chance of large fluctuations.
- Finally, we can sort the Iron Condor ROC by descending order to get a shortlist of highest return Iron Condors.
Based on the Options Scanner filter settings, here is the list of the safest and highest return 0.20 delta Iron Condors at the moment.
The Best Iron Condor Entry Points Right Now
So we have a shortlist of the safest and high return Iron Condor opportunities, we can fine-tune the selection to get the best entry points.
We can use the Options Volume in the watchlist to find more liquid options opportunities. In the list of high return Iron Condors, MRNA has greater Options Volume than RIO, so we get better fills when entering and exiting trades. Let's trade an Iron Condor for MRNA.
When we sell an MRNA Iron Condor that expires in 54 days, if the MRNA stock price does not exceed the short Put and short Call strike prices, we can make 58% maximum profit when the 4 options expire worthless.
Now you know how to use the Options Scanner to filter the best Iron Condor stocks to trade. Remember to use the scanner often to find high return neutral trades to sell, and profit from the lack of price movement.
29 thoughts on “最完整Iron Condor鐵兀鷹選擇權交易指南”
You said MRNA has a greater Options Volume than RIO, what does RIO mean???
I feel dumb but I figured it out lol so is there anything besides volume we should consider when picking one these stock results?
We want to choose opportunities with greater than 30 DTE to get the safest theta decay and less gamma.
IV Perc >67% to find opportunities that have a high chance of contracting IV and vega in our favour.
By choosing Market Cap ($B) larger than 10 billion, we find stocks that are less likely to be manipulated in price.
A good idea is to eliminate stocks with depressed price movement, or in Squeeze, because IV will expand soon after.
We should also avoid underlying that have an upcoming Earnings Date in 30 days to reduce the chance of large fluctuations.
Finally, we can sort the Iron Condor ROC by descending order to get a shortlist of highest return Iron Condors.
Thanks Tony, I thought it’s better to buy at least 10 delta lower from sold strike either side to have quicker time decay, is that correct?
Having wider strikes for Iron Condors gives you a more significant premium.
But it does come as a trade-off of higher maximum loss if the trade goes wrong.
Love your tips on finding the best stocks to trade iron condors
We really need to avoid meme stocks when trading neutral option strategies
That’s right, we need to find stable stocks with overstated IV to trade Iron Condors.
Great article, thanks very much for the insightful read. Could you possibly speak more (or link to an article if you’ve already written on this) about how we can adjust the strikes of each leg so that we can obtain the maximum theta possible? In an ideal world, it would be nice to hold to expiration, but in the real world, my understanding is that it’s best to close a few weeks out or when you’ve met your profit objective. In short, how do we create the best IC setup to have the fastest decay?
Thank you for your kind words.
We like to have the inner strikes 0.20 delta on either side of the market price, and the outer strikes one step further out, shown in our Options Scanner.
To get the best theta decay, we also choose the expiration at around 45 days.
Yes, we usually close our trades around 14 days before expiration, or when we reached 50% or more profit.
Finally a good tutorial on how to find good Iron Condor entry points.
Thank you for the tips in picking the best stocks for iron condors
I’ll give it a try
Yes, you’ll find that using the options scanner can help you consistently find high probability iron condors to trade
我很愛中立策略 但最近台指中立很難做 IV太低 幾乎收不到多少權利金
但我沒投資過美股 更不用說選擇權了 加上本身不會英文 需要適應一下
希望可以上手 這樣就不會只有台指選擇權能做了 而是更多選擇
Hi Tony, your pick is set short side at delta 20, how about long side? So strategy stated that short call put at delta 30, long call put at delta 16, what’s your opinion?
Hi Nathan, I would choose the long side as the nearest strike further away from the short side.
Since different stocks at different expiration have different step-sizes of the strikes (usually $5-10), I usually pick short strikes at 20 delta, and choose long strikes 1 step further out.
This usually gives me the best ROC with balanced risk.
Choosing 30 delta short and 16 delta long for higher ROC can work if we feel the underlying’s IV will compress before expiration.
How do you choose the underlying to sell iron condors?
Short iron condor strategy works best when you expect the underlying price to not fluctuate a lot
So we sell iron condors when the IV percentile is high, as we expect the high IV to regress to a lower IV in the near future
And we’ll profit from vega
Thank you for sharing the Iron Condor tips.
How do you pick the minimum ROC for Iron Condors to make the profit/risk balance worthwhile?
TastyTrade recommends a 1/3 width of the strikes as premium, which means 50% ROC
When you sort the Options Scanner by Iron Condor ROC, pick opportunities with ROC around 50% to follow TastyTrade’s recommendation.
Love the options scanner guys, I can’t trade iron condors and strangles without it now!
Glad you like it!
Thank you very much for the helpful information about how iron condor works