Combining two credit spreads to create an Iron Condor
The figure below shows an Iron Condor. This trade is created when we combine both a bull put credit spread and a bear call credit spread. If the Russell 200 Index (RUT) stays above 610 and below 740, called the “safe zone”, for 55 days for this particular example, both spreads will expire worthless for the buyer and we, the seller, will keep the collected premium. Assuming we open quantity 10 of this iron condor, comprising 10 point wide credit spreads, the maintenance requirement would be a total of $10,000. By opening both the bottom bull put spread, and the top bear call spread, we only have to provide maintenance for one side of the trade, thus providing us the opportunity to double our return on investment.
Combining two credit spreads to create an Iron Condor
The figure below shows an Iron Condor. This trade is created when we combine both a bull put credit spread and a bear call credit spread. If the Russell 200 Index (RUT) stays above 610 and below 740, called the “safe zone”, for 55 days for this particular example, both spreads will expire worthless for the buyer and we, the seller, will keep the collected premium. Assuming we open quantity 10 of this iron condor, comprising 10 point wide credit spreads, the maintenance requirement would be a total of $10,000. By opening both the bottom bull put spread, and the top bear call spread, we only have to provide maintenance for one side of the trade, thus providing us the opportunity to double our return on investment.
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