Reverse Iron Condor Spread The reverse iron condor spread is an options trading strategy designed to be used when you are expecting an underlying security to make a sharp move in price, but you aren’t sure in which direction that move will be. It’s an advanced strategy that involves calls and puts, and it requires a total of four binary option iron condor. At the time of applying this strategy, you’ll know exactly how much you stand to make or lose, because the potential profits and the potential losses are both limited.
For more information on this strategy please see below. When to Use the Reverse Iron Condor Spread As a volatile trading strategy, the reverse iron condor spread is used when you are expecting some volatility in the price of the underlying security. It profits when there’s a significant price movement, but it doesn’t matter in which direction that price movement is. This is one of the more complicated strategies and, it isn’t particularly recommended for traders that are inexperienced. How to Use the Reverse Iron Condor Spread There are four legs involved in this strategy. To keep things simple you can transact all four of the required legs at the same time, but you can choose to use legging techniques if you are comfortable doing so.
This can help to maximize the potential profitability. The four orders required at the outset are as follows. The number of contracts bought or written in each of the four legs should be the same. The expiration date of all contracts should also be the same.
The wider the difference between the strikes of these two legs, the lower the maximum potential loss is. The wider the difference between the strikes of these two legs, the less likely the strategy is to return a profit. However, a wider difference also means greater potential profit. To give you some idea of how the reverse iron condor spread can be used we have provided an example below. For the sake of simplicity we have used hypothetical options prices and ignored commission costs.
50, and your expectation is that the price will move significantly in either direction. Loss Potential For this strategy to return a profit the price of the underlying security must move below the strike of the options in Leg A or above the strike of the options in Leg C. It will result in a loss if the price doesn’t move far enough in either direction, or if it stays the same. You can calculate the exact break even points of this strategy at the time of applying it. You can also calculate the maximum potential profit and the maximum potential loss. We have listed the calculations you need to make below, together with the results of some hypothetical scenarios. 50 by the time of expiration, the options in all legs would expire worthless.