Playing the broad market with an iron condor strategy

As the market continues to churn sideways, giving back most of any rallies or recovering back to even from any selloffs, our Idea Generating Platform was set to sniff out Iron Condors and came up with the following option trading idea.

This trade can be legged into, selling the put spread on a selloff and selling the call spread on a rally. With the large selloff and credit fears in Europe, use caution when employing this trade. The strikes being used are outside the current range of the S&P 500 Index (SPX).

Iron Condor Trade Details:

The SPY is currently trading at $1,075.47.

Below are the elements (one bull put spread, one bear call spread) for this iron condor. Please note that a brokerage platform that provides for four-legged spread trading (such as OptionsHouse ) will allow the simultaneous execution of all four legs. Additionally, if you so choose, you should then be able to set a limit order for the spread as a whole, thereby securing a better credit.

Iron Condor Part I: Bull Put Spread –

• Sell the March 1,020 put
• Buy the March 1,005 put
• Net credit of $2.70 per spread

Iron Condor Part II: Bear Call Spread –

• Sell the March 1,150 call
• Buy the March 1,165 call
• Net credit of $1.50 per spread

Overall credit for the four-legged spread: $4.20

By opening a free virtual trading account with OptionsHouse, you could build a profit/loss diagram to help visualize this trade.

Profit/Loss Details:

Maximum profit: $4.20 (the total premium collected) minus commissions.

Maximum risk: $10.80 (the difference between put or call strikes minus the premium collected). Return on risk is approximately 39% for this strategy.

Upper breakeven price: $1,154.20 (the strike of the sold call plus the total premium).

Lower breakeven price: $1,015.80 (the strike of the sold put minus the total premium).

More on the SPX:

Analyzing volatility, market movement

Remember, trading Ideas are generated by the ONN Idea Generating Platform as a starting point for people to begin their own research. Trading ideas are not intended as trading or investment advice or recommendations that any particular security or strategy may be suitable for any specific person. You are solely responsible for your investment decisions, but we hope that some of these ideas will give you a starting point as you look for strategies to employ.

Keep an eye on the “Trading Idea” section of www.ONN.tv for more option trading ideas from nine different strategies, courtesy of the ONN Idea Generating Platform.