Markets can be volatile, and options traders need to adjust their strategies to accommodate market volatility, whether high or low. When it comes to options trading, there are a myriad of strategies that can be used depending on your view on an asset's future price and volatility. In our previous articles, we covered some of the most common basic strategies, income strategies, and bull and bear spreads. Iron condor strategies are used during periods of expected low-market volatility.
Iron Condor
This is a neutral strategy used to profit from low-volatility markets where the underlying stock is expected to remain within a specific range. This strategy involves selling a bull put spread and a bear call spread simultaneously, creating a limited range of profitability within the spreads. All options in this strategy have the same expiration date and are of the same underlying asset. This strategy profits from time decay and minimal movement in the stock.
• Ideal Scenario: Use this in a low-volatility environment.
• Benefit: Profitable within a specific price range.
• Risk: Limited to the difference between strike prices minus premiums collected.
Source: Tiger Trade app as of 19/02/25
Example:
An example of an Iron Condor trade using SPY (S&P 500 ETF) currently trading at $611.49.
Iron condor setup
Expiration: 30 days from today
Strike prices are chosen to profit if SPY stays between 605 and 620.
Put spread (Bull put spread)
Sell 1 SPY 610 Put for $7.43 (Premium received)
Buy 1 SPY 609 Put for $7.10 (Premium paid)
Call spread (Bear call spread)
Sell 1 SPY 613 Call for $8.54 (Premium received)
Buy 1 SPY 614 Call for $7.89 (Premium paid)
Premium collected (net credit)
Net premium from Put spread: $7.43 -$7.1 = $0.33
Net premium from Call spread: $8.54 -$7.89 = $0.65
Total Premium Received = $0.33 + $0.65 = $0.98 per contract ($98 total for 1 contract per leg).
Profit & loss calculation
Max profit:
If SPY stays between $610 and $613, all options expire worthless.
You keep the net $98 premium received.
Max loss:
Width of (any) one spread - total net premium received
Max loss= $1.00 - $0.98=$0.02
Breakeven points:
Lower breakeven: short put strike − total net premium = $610 − $0.98 = $609.02
Upper breakeven: short call strike + total net premium = $613 + $0.98 = $613.98
Why Use an Iron Condor?
Better for low volatility markets.
Defined risk and reward.
Profits if SPY stays within the range.
Options trading calculator
While options strategies can be confusing and calculations may not be your forte, Tiger Trade offers tools and educational resources to help investors navigate and explore what opportunities options trading may provide. Tiger Trade offers options calculator on its app to help investors calculate the theoretical price of an option in a given implied volatility and at a specific future time when the stock price is at a certain level. To use this feature log in to Tiger Trade > Quotes > Select Option you want > Option chain > Select the expiry date > find the specific call/put click> scroll down to locate the options calculator.
From here:
Enter the current price of the underlying asset (stock price).
Enter the strike price of the option.
Set the expiration date of the option.
Input the predetermined implied volatility.
Source: Tiger Trade app
By understanding these strategies and practising them in a demo account, you can build confidence and gradually refine your skills. Remember, no strategy is foolproof, so always stay informed and disciplined in your trading approach. Tiger Trade offers its users a free demo account, an options calculator, the latest in-depth market data and stock market news, allowing investors to practice strategies and get familiar with the workings of options trading.
Join Tiger Trade and practice options trading with no real capital risk using the Tiger Trade demo account. Plus, if you open an account and make a deposit, you'll get four $0 brokerage monthly trades on ASX, US stocks, ETFs or US options.*
*New clients & unfunded existing clients only. Only min. brokerage waived for 4 ASX, US stocks, ETFs or options trades. Third-party fees and other fees still apply. See T&Cs for details.
Please note that not all option strategies are available on Tiger Trade, however, have been included for education purposes.
Capital at risk. Options trading carries a high level of risk and may not be suitable for all investors. You should only trade with money you can afford to lose. See FSG, PDS, TMD and T&Cs via our website before trading. Information provided may contain general advice without taking into account your objectives, financial situations or needs. Past performance is no guarantee of future results. Graphics and charts are for illustrative purposes only. Tiger Brokers (AU) Pty Limited. ABN 12 007 268 386 AFSL 300767
