Understanding Reverse Iron Condor Options

People who have been associated with the trading business would be aware about the iron condor options trading strategy. It would entail a bull spread strategy joined with a bear spread strategy. It would be pertinent to mention here that such a strategy would leave you with guaranteed profit. It would not matter if it had been the amount of credit earned with the executed contracts. The iron condor option has been designed for usage with stocks that may have perceived low volatility. It has been known to work decently well.

The question to ponder upon would be how you would deal with stocks having high-perceived volatility. At the same time, how you would deal while trying to gain some profit regardless the way the price has been moving. It would be a unique situation suitable for Reverse Iron Condor options.

Working of reverse iron condor

The reverse iron condor has been termed as short iron condor strategy as well. It would be defined as a strategy offering limited risk. It would help you yield limited profit when the underlying value of the stocks would move up and down sharply.

Limited profit potential

It would not be wrong to suggest that despite limited profit potential, the chances of losing maximum amount would be relatively higher if the strategy fails. However, you would gain profit when the price of the underlying stock would fall much below the strike price of the short put. Yet another mode of profit would be on the underlying stock exceeding or equalling the strike price of higher short call. Despite the situation occurring, your profit would be the difference between the strike of the puts or calls, deducting the net debit that you have incurred when you would have started the trade.

Similarly, the maximum loss that you would suffer while executing reverse iron condor strategy trading options would be limited to the net debit you would take when you started the trade. However, the loss scenario would occur when the price of the underlying stock would fall ranging between the strike price of the long put and the strike price of long call. However, when it happens, all available options would expire worthless with the loss becoming limited to the starting debit.

What does reverse iron condor options need?

The reverse iron condor options would need several contracts having similar expiration date. The reverse condor options have been deemed great ways for replenishing your investment bank. You would be able to do it without incurring the usual amount of risk that may come with normal option trading.