If you are seeking a recurring monthly income stream and are a conservative investor, you need to know the answer to the question “What is an Iron Condor Spread?” Many people do not realize there are option techniques well suited to the risk-adverse investor – erroneously believing that options are just for gamblers and wild speculators.
In reality, if you are a conservative income-oriented investor, the Iron Condor spread may well represent exactly what you seek.
Because the two spreads are “credit” spreads, you are not spending a penny. Instead, you collect a premium right away when you initiate the trade; it’s credited to your account. If all goes well, the options expire on the 3rd Friday of the month with the underlying not having reached the exercise price of the spreads. The investor then “banks” the premium he collected up front.
Happily, the investment risk with associated with credit spreads, including the Iron Condor spread, is relatively small and is fully defined and controllable.
Unlike the situation when an investor purchases an option outright, the inexorable decay in an option’s price (premium) due to the passage of time is not a problem. The opposite is the case. Time decay works for the credit spread investor and many studies support the fact that the user of credit spreads enjoys a major statistical advantage over the speculators who buy options outright. The benefit is doubled for the investor making use of the Iron Condor spread because he can employ the two credit spreads that make up an Iron Condor and only need to have margin available in his account to support one credit spread, i.e. he has twice the rate of return on margin potential as the single credit spread investor.
The requirements for successfully producing a reliable stream of monthly income for Iron Condors is to (1) learn how to objectively identify the best credit spread candidates with the highest probability of success, and (2) learn how to objectively manage – with discipline – the Iron Condor spread trade once it’s been initiated. The strategy is not rocket science, but as with any investment you must acquire the “how-to” knowledge before committing actual funds to the undertaking.
Fortunately, that knowledge is easily obtainable from a myriad of books, investment courses, and knowledgeable practitioners.
So, do your homework!
