The Iron Condor – Like You’ve Never Seen It

The Iron Condor – Like You’ve Never Seen It



The Iron Condor – Like You’ve Never Seen It

Stock option traders have one set of rules for writing Condors. Once you graduate to commodities, some of those rules don’t have to apply anymore. Lucky you!

In doing some initial research for this piece, I did a bit of internet surfing over a weekend to see what kind of option “knowledge” is being peddled to the public these days.

The good news is, there is some fairly accurate and good information from reputable sources available to you.

The bad news is, 1. You really have to dig for it and 2. You’ll have to sift through a lot of rubbish from the internet hucksters trying to sell their wares to get to it.

That being said, some of the specific information I did find was woefully incomplete. For instance, about 95% of the information I found on options had to do with the undiversified stock or stock index options.

This rang particularly true when I was investigating one of the most powerful option selling strategies known to any option writer – the famous Iron Condor.

Consider these two partially incorrect truths from none other than one of the nets most reputable trader education sites – Investopedia:

1. Statement: Most often, the underlying asset is one of the broad-based market indexes, such as SPX, NDX or RUT. But many investors choose to own iron condor positions on individual stocks or smaller indexes. Partially incorrect because: No mention here of commodities AT ALL. Yet the commodities markets are potentially the most lucrative market for deploying the Condor.

2. Statement: When you own an iron condor, it’s your hope that the underlying index or security remains in a relatively narrow trading range from the time you open the position until the options expire. Partially incorrect because : This is true ONLY IN STOCKS. Selling the Condor in commodities can give you a canyon wide trading range for prices to move.

If you’re new to options, you’re about to discover one of the hidden secrets to turning an option selling portfolio into a long-term cash cow. If you are not, and have experience with writing condors, you’re about to discover them in a whole new light.

It’s called “Iron” for a Reason

As a portfolio manager, I have the opportunity to speak with hundreds of high net worth investors from around the world – both on a Manager to Client basis and on a colleague to colleague basis. I can tell you that I have met several who make a living selling S&P option condors. That’s it. That ALL they do. Year in and year out. Multi-million dollar accounts – generating 6 digit or more income annually.

I’ve also known at least 2 who went broke, both in 2009. You can guess why. When you’re limited to one market and one strategy – one macro wave can make a pretty big splash.

Thus while personally, I applaud their overall approach, I prefer a more diversified one myself.

That does not take away from the effectiveness of the Iron Condor.

Its called Iron for a reason. For the most part, it puts an iron gate of protection around your position that is difficult (although not impossible) for the market to penetrate.

tank-iron condor

Iron condors are named after a bird, but they are more like a tank.

It’s named after a bird, but the Iron Condor is more like a tank.

What is an Iron Condor?

In The Complete Guide to Option Selling 3rd Edition , you will not see the Condor mentioned by name. But in chapter 9, Recommended Spreads: The Few and the Proud, you’ll see both of its component parts mentioned. Those are the vertical spread and the strangle.

The strangle is an option selling strategy of selling a put below the market and a call above the market. If the options expire with the underlying ANYWHERE between the two strikes, the seller keeps the premium from both options. He also gets the added risk benefit of having the put and call “balance” each other. From a risk perspective, this provides and extra layer of protection.

To learn more about strangles, visit

A vertical spread, is a form of credit spread with options. To sell a bearish vertical call spread, a trader sells a closer to the money call at a higher premium, and then BUYS a deeper out of the money call at a lower premium. If both options expire out of the money, the trader keeps the difference in premium between the two options. The purpose of a vertical spread is to give the seller of the spread the protection of LIMITED Risk on each position. You can also employ this strategy on the Put side of the market if you are bullish.

To learn more about using a vertical spread, visit .

The Condor is simply a matter of combining these two strategies into one. Thus, you would write a strangle (a put and a call in the same market) and then protect each side by BUYING a deeper out of the money call and a deeper out of the money put. This gives you a vertical credit spread on both sides of the market. This allows you to enjoy the risk balancing effect of a strangle with the limited risk aspect of the vertical spread.

That’s why its called “iron.” A condor carries a lot of armor for your protection.

Confused yet? No worries. The example below illustrates using an Iron Condor in commodities.

The Condor in Flight – Commodities

The best way to understand an Iron Condor in commodities is through example. The one below illustrates a condor in the gold market.

(Note: The following is for EXAMPLE purposes only. No representation is made that recommends such a trade or that current premiums are reflective of the ones used in the example)

Example: Iron Condor In Gold

December 2017 Gold

GRAPH: December 2017 Gold

In March, an option seller believe gold will remain in the same trading range it’s been for the past year. He wishes to take premium from both sides of the market, but wishes to do it more conservatively through covered positions. He elects to use the Iron Condor.

Date: March 15, 2017

Trade: Selling December Gold 1550/1650 VerticalCall Credit Spread – Selling December Gold1050/950 Vertical Put Credit Spread

Execution: Sells the 15.50 call for $1,000 premium, buys the 16.50 call for a $400 premium/ Sells the 10.50 put for $1,000 premium, buys the 9.50 put for $400 premium. Thus he nets a $600 premium on each side (*minus any relevant transaction costs)

Net Potential Profit: $1,200 ($600 call side + $600 put side)

Margin Requirement: $1400

Risk: Risk to Sell Strike Going in the Money on either side

Profit Scenario: If Gold is anywhere between $1650 and $1050 per ounce on expiration day, all of the options expire worthless. The seller keeps the $1,200 net premium.

What are the Benefits of Positioning this Way?

1. High Premium vs. Margin Ratio – Meaning they can offer you an attractively high ROI. Exchanges recognize the built-in risk protection of such a spread and thus assign them lower margin requirements.

2. Staying Power – You can often hold an iron condor until one of the strikes actually goes in the money – meaning the market can make a wide range of movement without exceeding your risk parameters. This is because of…

3. Heavy Duty Risk Protection – Should the underlying market move to a point where it threatens one of the short strikes, the holder of the Condor can often exit at minimal loss. Why? Because although a near strike is threatened (thus its value is increasing), the protective long option is partially making up for this loss . But do not forget the credit spread you own on the other side of the market. Those options are decaying (making you a profit) from the very same move that’s threatening your strike. Thus, you have two positions that are profiting (the long protective option on the threatened strike, plus the vertical spread on the other side of the market) while only one is losing. In an extreme move, this can still result in a loss. But the loss accrues much more slowly with this double layer of protective coverage.

The Condor Like You’ve Never Seen It

If you’ve only seen condors applied to stock options, commodities can offer an entirely different manner of applying them. In fact, some of the rules of writing Condors with stock options don’t apply. These include:

1. Substantially Wider Profit Zones: The availability of deep out of the money strikes in commodities opens up wide profit zones for condor sellers in commodities. Rule of “narrow” profit zones does not apply.

2. Higher ROI: Lower margin requirements and higher premiums available in commodities options can offer investors considerably higher return on equity per trade. Rule of high margin requirement vs premium collected does not apply.

3. Diversification: Commodity option sellers have the ability to diversify over several different uncorrelated markets such as coffee, sugar, wheat, gold or crude oil. This unlike the S&P condor traders (or even individual stock option sellers) who literally have all their eggs in one market – Stocks. Rule of being stuck in one singular market does not apply.


Caption: Writing Condors in Markets such as coffee, sugar, wheat or gold ensures you’ll be diversified over several uncorrelated markets – unlike an S&P trader who is in only one market – stocks.

Covered credit spreads are a preferred strategy in our managed portfolios. However, for investors deploying iron condors on their own, they can at times be cumbersome to implement. They can also be slow moving so you need some patience. However, should you choose to fly with the condor in commodities, you’ll enjoy a high probability strategy that can produce a surprisingly high profit potential. You’ll also get risk protection that is as close as you can get to iron clad.

In the world of online option hype, the iron condor is one strategy that actually lives up to its billing . But if you really want to see this bird spread its wings, commodities is where it flies the highest.

( If you’re interested in learning more about using iron condors in a commodities portfolio, be sure to watch for our video tutorial on writing Iron Condors – coming to the blog this month .)

  1. Steven Perkins Says:
    December 21, 2017 at 2:25 am

    Boo-Aah! Total clarity, and makes a lot of sense to me.

    December 20, 2017 at 11:03 am

    A Wonderful and insightful write up. Just started into options and have been doing Verticals as well as condors but only on SPX as you rightly mentioned. But yes have done a couple of strangles on Gold and Oil. This article encourages me to try out more! Will look out for the Video.

    On Another note, I do read your monthly newsletter on commodities. Can I request that you also include the ticker symbol when referring to commodities? It will be helpful for newbies like us.

  3. Good one!

  4. Paul Franklin Says:
    December 19, 2017 at 5:14 pm

    Wonderful lesson with understandable real world example!

    Keep up the good work…you guys are GREAT!

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