GrowthPoint Investments, LLC : Iron Condor

Summary

The Iron Condor program is a premium selling strategy that is currently trading exclusively on the large S&P pit-traded contract. The strategy is to sell premium on the put side only. This credit spread is fully covered and the risks are known in advance. There are no naked short options. The configuration is a three-legged trade which differs from a standard vertical spread in that there is a long put closer to the money than the short puts. See diagram below. This might be called a broken-wing butterfly in a 1/-4/3 configuration. The strike distances between the inside put, short put and protective puts are chosen based on market conditions and historical back-testing.

Investment Strategy

The spread is designed to collect premium when set and, often times collect additional premium when exited. The behavior at expiration depends on market volatility, price and distance, etc. but protects the spread should the trade come under pressure near expiration.

Risk Management

Trades are typically exited when 80% or more of the intended premium has been secured. Defensive strategies include rolling the trade down or down and out to the next expiration. This action is typically taken when the market price comes within 10 points of the short strike intra-day. Short strike distance from market is typically 8-12%. This represents a 5-10% probability of finishing in the money. Current leverage is less than maximum risk.