Strategies · Library · Options
§2.50Hedges and structures
Long iron condor
Sell an out-of-the-money put and call and buy a further-out put and call as protection, for a net credit. It earns the credit if the price stays between the two short strikes.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Neutral: expects a range-bound, low-volatility market.
- Entry and exit
- Sell a put below and a call above the market and buy a lower put and a higher call, all same expiry, for a credit. Hold to expiry or close early with most of the credit captured.
- Sizing
- 1 long put, 1 short put, 1 short call, 1 long call
How it fails
- Maximum gain is the credit, taken if the price ends between the short strikes
- Maximum loss is the wing width less the credit, on either side
- Decay is the income; a volatility spike or a gap can cause the loss
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
A Call that a market stays within a band through a date matches this view; paper only.
Needs options and sold options.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.50, p. 37 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.