Have you heard of reverse iron condor options?
You may be familiar with the iron condor options trading strategy. This is when you execute a bullish spread combined with a bearish spread strategy that almost always guarantees a profit, even if it is only the amount of credit earned by executing the contracts. The Iron Condor option is designed for use with stocks that have perceived low volatility. Works very well.
But what happens when you’re dealing with a stock that has high perceived volatility and you still want to try to lock in some profit regardless of which way the price moves? This is exactly the situation that reverse iron condor options are designed for.
Here’s how they work:
The beauty of the iron condor inverse or short strategy is that they also offer limited risk and can result in limited profit when the underlying stock moves sharply up or down.
Although the profit potential is limited, it is much higher than the maximum amount you can lose if the strategy fails. You win when the price of the underlying stock falls below the strike price of your short put or when it equals or exceeds the strike price of the higher short call.
Regardless of which situation occurs, your profit is the difference between the call or put strike, minus the net debit you made when you initiated the trade.
Likewise, the maximum possible loss when executing options trades with a reverse iron condor strategy is limited to the net debit you took when you initiated the trade. The loss scenario occurs when the price of the underlying stock falls between the strike price of the long call and the strike price of the long put. When this happens, all options expire worthless and the loss is limited to the original debit.
Reverse iron condor options require multiple contracts with the same expiration date. It can get a little complicated, but once you understand the basics of how reverse iron condor options work, you can create them virtually effortlessly.
The condor and its accompanying inverse condor options are great ways to fill your investment bank without taking on the usual amount of risk that comes with standard options trading.
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