Updated: Aug 24
When it comes to options strategies, Iron Condors are one of traders’ favorite. This is an advanced trading strategy that in the right market conditions can provide you with protection and an edge substantially increasing chances of success.
One of the main pitfall of this strategy is the entry credit. Your goal is to pick up a combination of strike prices which can increase the initial credit received and consequently create a wider profit area. In fact, you want the underlying security to trade within the options sold to benefit the most from time decay.
In this article, I am going to bring to you a dynamic Iron Condor option strategy traded on the Exelon Corporation (EXC). This trade was remarkable as I could make 110% return in 44 days. Watch the video below and then carry on reading to get more details of this trade.
The Reasoning Behind the Strategy
In February 2023 EXC was trading sideways in what I believed was a well-defined price range. An Iron Condor could be a feasible strategy to trade with little risk and high chances of success. However, I did not decide to open the Iron Condor all at once as most options traders do.
At Options Master Trader we have a dynamic trading methodology which adapts to the price action of the underlying security. With this in mind I consider an Iron Condor like an adjustment or strategy enhancement.
With EXC trading in a range, I identified a support level around $40 and on Wednesday the 1st of March 2023 decided to open a Bull Put Spread. I purchased 5 contracts of the 37 put options expiring on 21st of April 2023 and sold 5 contracts of the 40 put options expiring on 21st of April 2023. This created a slightly bullish strategy with a lower breakeven point at $39.08, a total investment of $1040 and an entry credit/max profit of $460. The options traded were 51 days away from expiration. My goal here was for EXC to bounce back up quickly to start making some profit and then adjust the trade to its final form.
Only two days later, the underlying did bounce back to over $41. It was trading around $39.50 when the position started. This price increase generated a profit of $215 (36% return). That’s when I saw the opportunity to enhance this trade with an adjustment. On Friday the 3rd of March, I went ahead selling a Bear Call Spread against the Bull Put Spread created two days earlier on the same underlying. This created the dynamic Iron Condor strategy you see on the video above.
I sold 5 contracts of the 42 call options expiring on 21st of April 2023 and purchased 5 contracts of the 45 call options expiring on 21st of April 2023. Now the maximum risk of this combined position is $600 (down $440 from before), and the entry credit/max profit potential is $900 (up $340 from before). What’s more, by creating the Iron Condor you have expanded the profit area putting the odds dramatically in your favor.
Let's Analyze and Monitor the Iron Condor
The overall strategy has two breakeven points (BEPs): a downside BEP at $38.20 and an upside BEP at $43.80. The trade profit area is $5.60 large and covers all the channel in which the underlying is trading at the moment. From this point ahead, you are not interested anymore in the direction of the stock. You are happy as long as the stock trades within the two breakeven points and you reach the maximum potential with the stock trading between the sold options strikes.
Time decay is in your favor meaning that you are making a daily profit of $5.67 just for being in the trade. And this daily profits will increase exponentially as the strategy gets closer to the expiration date.
In the following days, I had to monitor the trade daily - a few minutes a day - to make sure the position was safe and within my parameters. There was some volatility with the underlying price going all the way down to $39 and then back up to $43.50, but this price action was within the breakeven points which insured I could carry on making more profit thanks to the passage of time ($8 a day closer to expiration). On Friday the 14th of April, after 44 days in the trade, I closed the Iron Condor with an overall profit of $650. I had invested $1040 for a couple of days and then $600 when the strategy was fully built. This created an outstanding ROI of over 150% of the money invested.
It might look easy as it is described on this website, but please consider these trades required many years of work and study on options trading. You can certainly create yourself advanced options strategies like this Iron Condor, but I would suggest you find a mentor first, someone who can guide you all the way to success. You can explore my options trading video course and my 1-2-1 coaching service if you are truly interested in trading options successfully.
I’ll see you on my next release of the Options Trading Diary.