← Strategy LabLesson 31 · 4:44
Reverse iron condor
Summary
The reverse iron condor flips every piece of the iron condor to bet on a big move in either direction for a fixed price. In the example it costs $195 and can make $305 if XYZ ends past $90 or $110, but if XYZ sits between $95 and $105 you lose all of the $195. You break even at $93.05 and $106.95.
Key terms
- reverse iron condor
- Buying a put below the price and a call above it, and selling cheaper ones further out, to pay a fixed amount for a bet on a big move either way.
- net debit
- When a pair of trades sends cash out overall.
- pit
- The flat low middle of a last-day line, where a trade that bets on a move loses all it paid.
- long strangle
- Buying an out-of-the-money put and an out-of-the-money call with the same expiry; cheaper than a straddle but needs a bigger move.
- time decay
- Time value draining out of an option as the days pass, even when the stock doesn't move.
Check yourself
Answer each question to see why the right answer is right.
1. How much does the lesson's reverse iron condor cost to open, net?
2. What do the $90 put and $110 call you sell do in this trade?
3. XYZ ends at $100 on the last day. What is your result?
4. XYZ ends at $90 on the last day. What is your result?
5. XYZ sits at $100 and the days pass with nothing else changing. What happens to your result if you closed today?
Finished the video and the quiz? .