Iron Condor

A strangle has unlimited risk on both sides and requires much higher margin. An iron condor has defined, limited risk thanks to the protective wings (long options), and requires less capital. The trade-off is you collect less premium.

You keep the entire credit you collected! All four options expire worthless, and the credit becomes your profit.

No, you can only lose on one side. The stock can't be both below your put strikes AND above your call strikes at the same time. Your worst case is max loss on one side.

30-60 DTE is typical. This gives enough time for theta decay while avoiding the intense gamma risk of the final weeks. 45 DTE is a popular sweet spot.

An iron condor uses both. The lower spread uses puts (bull put spread) and the upper spread uses calls (bear call spread). This is the standard construction.

Adjust if your thesis (range-bound) is still valid and you believe the stock will reverse. Close if the range has clearly broken or if you're unsure. Never adjust just to avoid taking a loss if the thesis is broken.

SPX is European-style (no early assignment risk), cash-settled (no share assignment), and has favorable 60/40 tax treatment. The disadvantage is higher absolute cost due to the larger notional value.

A volatility spike hurts your short vega position. Options: 1) Hold if you believe it's temporary, 2) Close and take the loss, 3) Wait for IV to subside. Don't panic - iron condors can recover if stock stays in range.

Monthly options have better liquidity and more manageable gamma. Weeklies offer more premium per day but have higher gamma risk. Start with monthlies, use weeklies only with experience.

Ideally, don't have iron condors through earnings. Close before earnings or ensure expiration is well after earnings. If you must hold through, understand you're taking significant gap risk.

Calculate expected move: Stock x IV x sqrt(DTE/365). Place short strikes outside this expected move. For higher probability, use 1.5x expected move. Balance probability with credit received.

Ladder expirations for smooth returns, diversify across uncorrelated underlyings, track aggregate Greeks, set portfolio-wide limits, and have hedges for tail risk (long VIX, long puts).

High VIX: Wider strikes, smaller positions, expect larger moves. Low VIX: May not trade, or accept lower credit. Trending: Skew in trend direction. Range: Standard symmetric approach.

When stock has moved through one short strike but you expect reversal. Rolling the tested spread past the other creates a guaranteed minimum profit if reversal occurs, while still benefiting if the move continues.

Use historical options data including Greeks. Account for realistic bid-ask spreads. Model exit rules exactly. Test across different market regimes. Be cautious of overfitting to historical data.