Iron Condor

While you risk more than you can gain on any single trade, the probability of winning is much higher (typically 65-75%) than losing. Expected value matters more than risk/reward ratio. Example: 70% chance of A$100 profit, 30% chance of A$250 loss = Expected value +A$70 - A$75 = -A$5. Wait - that's negative! This shows why strike selection, IV environment, and management rules matter so much.

If the put side is tested (stock drops), the put spread loses value but the call spread gains value (both calls expire worthless). The call side profit partially offsets put side loss. However, the max loss is still wing width minus credit because the profitable side maxes out at its credit while the losing side can lose the full wing width.

Yes, you can close either spread independently. If the stock rallies and the put spread is near max profit (both puts almost worthless), you might close the put spread and leave the call spread. This converts the remaining position to a bear call spread. Common practice when one side reaches 80%+ of its max profit.

Theta decay accelerates in the final 30-45 days before expiration. Entering at this point captures the 'theta curve' where you earn time decay at an increasing rate. Too early (60+ DTE) and theta is slow. Too late (<21 DTE) and gamma risk is high - small moves cause large P&L swings.

Iron condor has short strikes at different prices (OTM puts and calls), creating a wide profit plateau. Iron butterfly has both short strikes at the SAME price (ATM), creating a single profit peak. Condor: Higher probability, lower max profit. Butterfly: Lower probability, higher max profit at a specific price.

Roll if: You can collect credit for the roll AND you still believe in range-bound outcome. Close if: Stock has broken technical levels suggesting trend continuation, or you've hit your max loss threshold. Hold if: Stock is at short strike but you believe support/resistance will hold, and position is still within acceptable loss limits.

Margin is typically the wing width × contracts × 100, minus credit received. Example: A$4 wings, 5 contracts = A$2,000 margin. Credit of A$600 doesn't directly reduce margin (varies by broker). Plan for full margin requirement. Some brokers offer 'portfolio margin' for lower requirements.

Standard practice is symmetric (equal wing widths, equal delta). However, you can skew the condor based on directional lean or to account for put skew. If slightly bullish, use wider put wings. For put skew adjustment, narrower call wings can balance premium collection. Document your reasoning for asymmetric positions.

If the short call goes ITM before ex-dividend and time value < dividend, early assignment is likely. The holder exercises to capture the dividend. Monitor ITM calls as ex-date approaches. Consider closing or rolling before ex-date if assignment risk is high. Put side is less affected by dividends.

Index (XJO): Lower idiosyncratic risk, typically more liquid, no earnings risk, but can't avoid market-wide moves. Stocks: Higher premium (higher IV), more diversification opportunity across positions, but earnings/news risk. Many traders use both - XJO for core position, stocks for premium enhancement.

High IV (>50%): Use wider wings (more cushion from elevated premium), take profits earlier (50% rule), consider wider short strikes (12-14 delta). Low IV (<30%): Use tighter wings (need adequate credit), hold longer for time decay, use standard 16-delta shorts. Track regime and adjust parameters accordingly.

Aggregate all iron condors' Greeks. Total delta should be near zero or slightly short for natural market hedge. Total vega will be significantly negative - consider hedging if >10% of portfolio at risk from IV spike. Diversify expirations to avoid gamma concentration. Stress test total portfolio max loss assuming correlation = 1.

Rolling has negative EV when: (1) You're paying debit to roll (never do this), (2) The new position has worse probability than simply closing and starting fresh, (3) You're rolling into earnings or other catalyst. Also consider opportunity cost - capital tied up in a losing roll could be deployed to better setups.

Must include: Realistic bid-ask (typically 2-5% per leg), all four option chains historically, proper handling of early exercise, separate analysis by IV regime. Common mistakes: Ignoring transaction costs, using mid-price execution, not testing different entry/exit rules. Validate with out-of-sample data.

Iron condors provide steady income in range-bound/declining IV environments. Pair with long vega strategies (calendars, long straddles) for balance. Use iron condors on liquid underlyings where you have neutral view. Don't over-allocate to condors - they all lose in vol spike events. Target 40-50% of options portfolio.