Iron Condor

Trading The Iron Condor
MasterMind Traders
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Neither MasterMind Traders or any of its personnel are registered
broker-dealers or investment advisers. I will mention that I consider
certain securities or positions to be good candidates for the types of
strategies we are discussing or illustrating. Because I consider the
securities or positions appropriate to the discussion or for illustration
purposes does not mean that I am telling you to trade the strategies or
securities. Keep in mind that we are not providing you with
recommendations or personalized advice about your trading activities.
The information we are providing is not tailored to any particular
individual. Any mention of a particular security is not a
recommendation to buy, sell, or hold that or any other security or a
suggestion that it is suitable for any specific person. Keep in mind that
all trading involves a risk of loss, and this will always be the situation,
regardless of whether we are discussing strategies that are intended to
limit risk. Also MasterMind Traders’ personnel are not subject to
trading restrictions. I and others at MasterMind Traders could have a
position in a security or initiate a position in a security at any time.

• IRON CONDOR
– Two credit spreads on the same index
– Bull Put Spread and Bear Call Spread
• CREDIT SPREAD
Option strategy in which one option at a
particular strike price is sold and a less
expensive option at another strike price is
bought as an insurance policy. This creates a
credit in your account.

Option Styles
• American style - can be exercised ON or

BEFORE expiration day.
• European style - can be exercised ONLY ON
expiration day, no sooner.
• SPX (S&P 500), RUT (Russell 2000), XEO
(S&P 100) are all European (non early exercise).
• OEX (S&P 100) and stocks are American
(early exercise).

Cash Settlements
• Based on expiration Friday’s opening prices
of stocks within the index.
• Can differ from Thursday’s close by as much
as 10 points.
• Settlement value determines option assignment.
• SPX and RUT have Thursday to Friday cash
settlements.
• XEO, OEX and SPXPM have a Friday PM
settlement (LAST trade).

Bearish Opinion
Expect the market to go down or at least stay down

for certain level for a specified amount of time.
Sell a Call Spread

Bear Call Spread – Underlying at 1000
Buying 1060 calls 2.50 x 2.80

Selling 1050 calls 3.10 x 3.40
Credit of ………….$.30 (Natural Credit)
NATURAL CREDIT - The amount of credit the

market is offering you at any given point in
time.

Negotiating
Buy 1060 calls 2.50 x 2.80
Sell 1050 calls 3.10 x 3.40
Skim off 1/3 of the bid x ask spread from each option
and add amount to natural. Take $.10 from 1060 calls
and take $.10 from 1050 calls.
Natural credit of $.30 + $.10 + $.10 = $.50 Net Credit.

Bullish Opinion
Expect the market to go up or at least stay above a

certain level for a specified amount of time.
Sell a put spread

Bull Put Spread –Underlying at 1000
Selling 950 puts 4.10 x 4.70

Buying 940 puts 3.60 x 3.90
Credit of ………….$.20 (Natural Credit).

Negotiating
Sell 950 puts 4.10 x 4.70
Buy 940 puts 3.60 x 3.90
Again, take 1/3 of bid/ask spread of each option.

Take $.20 from 950 puts and $.10 from 940 puts.
Natural credit of $.20 + $.20 + $.10 = $.50 Net Credit.

Complete Iron Condor
• BEAR CALL SPREAD
BUY 1060 CALLS Net Credit of $.50
SELL 1050 CALLS
Underlying at 1000 – Total Credit of $1.00
• BULL PUT SPREAD

SELL 950 PUTS Net Credit of $.50
BUY 940 PUTS

Cost Requirement
Spread – Total Credit x # of contracts x 100
Example:
$10.00 – $1.00 x 10 x 100 = $ 9,000.00

Iron Condor Guidelines
1.) Using a 10 point spread, obtain a MINIMUM
of $.50 NET CREDIT per credit spread.
2.) Trade only broad based indices.
3.) Delta of sold option should be .12 (negative
.12 for puts) or below. Delta of .12 (.08, .06, etc) shows
that option has a 12% chance of expiring in the
money.
4.) Total Iron Condor credit collection should be
$1.00 - $2.00.

Iron Condor
1.) Bearish days (increase in volatility) give best
opportunities for fills.
2.) Increase in volatility creates larger credits further out
of the money (especially for the puts).
3.) Bullish days will create opportunities for creation of
better call spread premium.
4.) Start looking for entrance opportunities about 7 weeks
prior to expiration.
5.) Wait on large index moves, up or down, to get spreads
filled.

Call Spread fill
Call Spread fill
Put Spread fill
Put Spread fill

• Use option friendly broker.
• Use credit spread order screen to STO and
BTO in one trade execution.
• DO NOT LEG INTO SPREADS!!!
• Only 1 x cash required for both spreads.
• Will let you use portfolio as collateral.
• Contact broker to determine what securities
can be used to cover requirements.

Early Exits
MORE THAN ONE WEEK FROM EXPIRATION
• Delta of short option reaches .25 for a call spread.

• Delta of short option reaches -.25 for a put spread.
• At this point the sold option has a 25% chance of
expiring in the money.

Exit Practice
Exit Bull Put Spread – Index @ 967
950p – 5.00 x 5.30
940p – 3.90 x 4.50
*Don’t forget to negotiate.

5.00 x 5.30 = _____ spread/3 = _____
3.90 x 4.50 = _____ spread/3 = + _____
BTC 950p @ _____

STC 940p @ _____
Debit of _____ - _____ magic #

Total Debit $_______

Exit Practice
Exit Bear Call Spread – Index @ 1031
1060c – 4.10 x 4.70
1050c – 5.10 x 6.00
*Don’t forget to negotiate:

4.10 x 4.70 = _____ spread/3 = _____
5.10 x 6.00 = _____ spread/3 = + _____
BTC 1050 @ ____

STC 1060 @ ____
Debit of _____ - _____ magic #

Total Debit ______

Bad Settlement
• 1050/1060 call spread and 950/940 put spread for
$1.00 total credit.
• Settlement is at 1052.
• Short 1050 call is $2.00 ITM.
• Cash settlement of -$2.00 or -$2,000.00 on 10

contracts.

Rolling Up/Down
• If you exit a bear call spread early, you can enter
another bear call spread at higher strike price (roll up).
• If you exit a bull put spread early, you can enter

another bull put spread at a lower strike price (roll
down)
• Repairs depend on market conditions and expiration

time.

Rolling Up/Down
• Take in at least the same amount of credit as
you held on original spread (i.e. $.60 on
original spread, take in $.60 on roll up/down).
• Gain an extra 30-40 points between index
value and short option of new spread.
• Roll up/down into next expiration month
(rolling out) if adequate cushion isn’t
available.
• Can increase number of contracts when
rolling.

New Credit of $.60 or more
$.60 Credit
$.60 Credit

Rolling Up/Down
• In this example, $1.20 original credit was taken in.
• Assuming the exit cost of the call spread was $1.60

and $.60 credit was received on the roll up, the total
profit potential is now $.20.
• $1.20 - $1.60 + $.60 = $.20

Managing The Iron Condor
MasterMind Traders

Iron Condor Review
•Two credit spreads on the same underlying.
•Indexes…….SPX(SPXPM), RUT, OEX (XEO)
•Take in between $1.00 and $2.00 total credit.
•Place spread orders one at a time (no IC order screens)

BTO 870 Calls
STO 860 Calls $.60
Underlying at 800
STO 720 Puts $.60

BTO 710 Puts

BTO 870 Calls $.30
STO 860 Calls $.60
Underlying at 770
STO 720 Puts $2.50 (BTC)

BTO 710 Puts $1.50 (STC)

BTO 870 Calls $.15
STO 860 Calls $.30
Underlying at 750
STO 720 Puts $4.50 (BTC)

BTO 710 Puts $2.50 (STC)

RUT at 817 – Put Options 6 weeks out
830 put 30.50

820 put 25.70
810 put 21.50
800 put 18.10
790 put 15.10
780 put 12.60
770 put 10.50
760 put 8.70
750 put 7.30
740 put 6.00
730 put 5.00
720 put 4.10
710 put 3.40
700put 2.80
690 put 2.40

830 put 30.50
820 put 25.70
810 put 21.50
800 put 18.10 Market falls 80 points:
790 put 15.10
780 put 12.60 720/710 put spread that
770 put 10.50 was trading for $.70 is
760 put 8.70 now trading for $3.00.
750 put 7.30 720/710 now looks like
740 put 6.00 the 800/790 put spread.
730 put 5.00
720 put 4.10
710 put 3.40
700put 2.80
690 put 2.40

830 put 30.50
820 put 25.70
810 put 21.50
800 put 18.10 Market falls 50 points:
790 put 15.10
770 put 10.50 was trading for $.70 is
760 put 8.70 now trading for $1.80.
730 put 5.00
720 put 4.10
710 put 3.40
700put 2.80
690 put 2.40

830 put 30.50
820 put 25.70
810 put 21.50
800 put 18.10 Market rises 50 points:
790 put 15.10
770 put 10.50 was trading for $1.30 is
760 put 8.70 now trading for $.40.
730 put 5.00
720 put 4.10
710 put 3.40
700put 2.80
690 put 2.40

Debit Spread Structure
• Buy option closer to market and sell option at further

strike.
• Index at 800
• 760/750 put debit spread (buy 760/sell 750) for $1.00
cost
• 760/750 put credit spread (sell 760/buy 750) for $1.00
credit

• If a 760/750 put debit spread were purchased for $1.00

the max risk is the $1.00 cost.
• Max profit is $9.00 (10 – 1 ) and is achieved only if

underlying is below both strikes at expiration.

• Since debit spread hedges are bought closer to the

money as compared to the out of the money credit
spread, they will be bought at a higher cost than credit
received from original credit spread being hedged.
• Must balance total spread/iron condor credit against

debit spread cost.

830 put 30.50
820 put 25.70 IC total credit of $1.20($1,200 on
810 put 21.50 10 contracts).
800 put 18.10
790 put 15.10
780 put 12.60 Debit Spread hedge for $2.10.
770 put 10.50 Can buy 6 contracts for $1,260.
760 put 8.70
750 put 7.30
740 put 6.00 Original Put Spread of IC.
730 put 5.00
720 put 4.10
710 put 3.40
700put 2.80
690 put 2.40

830 put 30.50 Market falls 30 points
820 put 25.70
810 put 21.50
800 put 18.10
790 put 15.10 $2.10 debit sold for $3.40 -
DEBIT 780 put 12.60 $1.30 gain x 6 cts = $780
770 put 10.50
CREDIT
760 put 8.70
750 put 7.30 Original put spread now
740 put 6.00 trading for $1.80 cost
730 put 5.00 $1.80 - $1.20 IC credit= $.60
720 put 4.10 loss ($600 loss on 10cts).
710 put 3.40
700put 2.80
690 put 2.40

820 put 25.70
810 put 21.50 $2.10 debit sold for $4.80 -
800 put 18.10 $2.70 gain x 6 cts = $1,620
790 put 15.10
CREDIT 780 put 12.60
DEBIT 770 put 10.50
760 put 8.70 Original put spread now
750 put 7.30 trading for $2.50 cost.
740 put 6.00 $2.50 – $1.20 IC credit = $1.30
730 put 5.00 loss ($1,300 on 10 cts).
720 put 4.10
710 put 3.40
700put 2.80
690 put 2.40

830 put 30.50 What if the 720/710 spread was
820 put 25.70 entered for $.70 on 10cts = $700
810 put 21.50 credit and hedged immediately
800 put 18.10 with 4 cts of 780/770 for $2.10 =
790 put 15.10 $840 cost.
780 put 12.60
770 put 10.50
760 put 8.70
750 put 7.30
740 put 6.00
730 put 5.00
720 put 4.10
710 put 3.40
700put 2.80
690 put 2.40

820 put 25.70
810 put 21.50
800 put 18.10 $2.10 debit is now trading at
790 put 15.10 $4.20 = $2.10 gain x 4cts = $840
780 put 12.60
770 put 10.50
760 put 8.70
750 put 7.30
740 put 6.00
730 put 5.00 $.70 credit now trading at
720 put 4.10 $1.40 debit = $.70 loss ($700
710 put 3.40 on 10 cts).
700put 2.80
690 put 2.40

830 put 30.50 What if index finished between
820 put 25.70 720 and 770?
810 put 21.50
800 put 18.10
790 put 15.10 $7.90 (10 spread – $2.10 cost)
780 put 12.60 gained x 4 cts = $3,160 gain.
770 put 10.50
760 put 8.70
750 put 7.30
740 put 6.00
730 put 5.00
720 put 4.10 Keep $.70 credit on 10 cts =
710 put 3.40 $700 gain.
700put 2.80
690 put 2.40

Different Time Frames
•In all scenarios, the numbers work out more in
trader’s favor as expiration day nears.
•For example, gains on debit spreads will further

outweigh losses on credit spread exit costs as
expiration gets closer in time.
•Buy enough contracts of hedge so that cost doesn’t

go too far over credit received.

Call/Put Backspreads
• Sell 1 closer to the money option.
• Buy 2 further out of the money options.
Example: Index at 1395

Sell 1 1400 call
Buy 2 1405 calls - placed at a debit

SPX at 1395 - 6 weeks out
1400 call 21.70
1405 call 18.80
1410 call 16.60
1415 call 14.10
1420 call 12.40
1425 call 10.30
1430 call 8.70 1440/1445 call backspread
1435 call 7.30 $3.90 or $390 for 1ct
1440 call 5.90 Selling 1 1440/Buying 2 1445
1445 call 4.90
1450 call 4.10 *(Notice: only a 5 point spread)
1455 call 3.50

1400 call 21.70 Market rises 30 points
1405 call 18.80
1410 call 16.60 BTC 1ct 1410/STC 2cts 1415
1415 call 14.10 for $11.60 - $3.90 = $7.70 gain
1420 call 12.40 or $770 per contract
1425 call 10.30
1430 call 8.70 1440/1445 call backspread
1435 call 7.30 $3.90 or $390 for 1ct
1440 call 5.90 Selling 1 1440 /Buying 2 1445 :
1445 call 4.90 1440/1445 backspread now
1450 call 4.10 looks like 1410/1415 spread
1455 call 3.50

Long 10 cts 1455 calls
Short 10 cts 1445 calls
SPX now at 1395 - $1.20($1,200) total

credit
Short 10 cts 1235 puts

Long 10 cts 1225 puts

1380 call 33.80
1385 call 30.50 Stock rises enough to increase
1390 call 27.30 value of Call Spread:
1395 call 24.30
1400 call 21.70
1405 call 18.80
1410 call 16.60 Hedge with 1425/1430 backspread
1415 call 14.10 Cost of $7.10 – Trade 2 cts for every
1420 call 12.40 10 of IC. So, sell 2 1425/buy 4 1430
1425 call 10.30 Total cost of $14.20 or $1,420.
1430 call 8.70
1435 call 7.30
1440 call 5.90
1445 call 4.90 Total IC credit was $1,200 so spending
1450 call 4.10 $1,420 is $220 over credit received.
1455 call 3.50

Market rises 30 points
1380 call 33.80
1385 call 30.50
1390 call 27.30
1395 call 24.30
1400 call 21.70
1405 call 18.80
1410 call 16.60 Sell backspread at $19.10 - $7.10 =
1415 call 14.10 $12.00 gain x 2 = $2,400 gain
1420 call 12.40 1425/1430 backspread now
1425 call 10.30 looks like 1395/1400 spread.
1425 call 10.30
1430 call 8.70
1435 call 7.30 Buy back put spread for $3.80
1440 call 5.90 or $3,800 - $1,200 IC credit=
1445 call 4.90 $2,600 loss on 10 cts -
1450 call 4.10 1445/1455 put spread now looks
1455 call 3.50 like 1415/1425 spread.

Condoring an 860/870 Spread
Long 870 calls x 10 original
Original Sell 865 calls x 10 new
Short 860 calls x 10 original New
Buy 855 calls x 10 new

Debit of $.90
rising
RUT at 822
Total Iron Condor Credit of $1.10

Balanced Condor
Long 870 calls x 10

Credit Spread
Short 865 calls x 10
Debit Spread
Long 855 calls x 10
As RUT gets closer to 855, you’ll see that the condor

gains value.

Long 870 calls x 10
Long 855 calls x 10
If RUT moves back down to “safe territory”, the long

855/860 can be sold back to recoup value (can do in
parts).

Long 870 calls x 10
Long 855 calls x 10
RUT still has chance of settling somewhere within the

condor and making additional profit.

Neither MasterMind Traders or any of its personnel are registered
broker-dealers or investment advisers. I will mention that I consider
certain securities or positions to be good candidates for the types of
strategies we are discussing or illustrating. Because I consider the
securities or positions appropriate to the discussion or for illustration
purposes does not mean that I am telling you to trade the strategies or
securities. Keep in mind that we are not providing you with
recommendations or personalized advice about your trading activities.
The information we are providing is not tailored to any particular
individual. Any mention of a particular security is not a
recommendation to buy, sell, or hold that or any other security or a
suggestion that it is suitable for any specific person. Keep in mind that
all trading involves a risk of loss, and this will always be the situation,
regardless of whether we are discussing strategies that are intended to
limit risk. Also MasterMind Traders’ personnel are not subject to
trading restrictions. I and others at MasterMind Traders could have a
position in a security or initiate a position in a security at any time.

Iron Condor

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Trading The Iron Condor

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• American style - can be exercised ON or

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Expect the market to go down or at least stay down

Sell a Call Spread

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Buying 1060 calls 2.50 x 2.80

Credit of ………….$.30 (Natural Credit)

NATURAL CREDIT - The amount of credit the

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Natural credit of $.30 + $.10 + $.10 = $.50 Net Credit.

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Expect the market to go up or at least stay above a

Sell a put spread

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Selling 950 puts 4.10 x 4.70

Credit of ………….$.20 (Natural Credit).

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Again, take 1/3 of bid/ask spread of each option.

Natural credit of $.20 + $.20 + $.10 = $.50 Net Credit.

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SELL 1050 CALLS

Underlying at 1000 – Total Credit of $1.00

• BULL PUT SPREAD

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Call Spread fill

Put Spread fill

Put Spread fill

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• Delta of short option reaches .25 for a call spread.

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*Don’t forget to negotiate.

BTC 950p @ _____

Debit of _____ - _____ magic #

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*Don’t forget to negotiate:

BTC 1050 @ ____

Debit of _____ - _____ magic #

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• Short 1050 call is $2.00 ITM.

• Cash settlement of -$2.00 or -$2,000.00 on 10

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• If you exit a bull put spread early, you can enter

• Repairs depend on market conditions and expiration

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• Assuming the exit cost of the call spread was $1.60

• $1.20 - $1.60 + $.60 = $.20

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•Indexes…….SPX(SPXPM), RUT, OEX (XEO)

•Take in between $1.00 and $2.00 total credit.

•Place spread orders one at a time (no IC order screens)

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STO 720 Puts $.60

Debit of _ - _ magic #

Debit of _ - _ magic #