WOW33 – How to build Iron Condor

Guest: Shawn Howell, Pro Market Advisors LLC

Host: Georgio Stoev, Product Manager Saxo Bank

June 3, 2016

Iron Condors

A Friend When There

is No Trend.

3

Important Information - Saxo Bank

Educational Purposes: The material is provided for informational and educational purposes only and no

information contained herein constitutes a solicitation for the purpose of purchase or sale of any commodity,

security or investment, nor should it serve as the basis for any investment decision. The Saxo Bank Group

does not guarantee the accuracy or completeness of any information or analysis supplied. The Saxo Bank

Group accepts no responsibility or liability for the contents of any other site, whether linked to this site or

not, or any consequences from your acting upon the contents of another site.

No Guarantee: The contents of this publication should not be construed as an express or implied promise,

guarantee or implication by the Saxo Bank Group that clients will profit from the strategies herein or that

losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an

analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives,

can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in

the analysis do not occur as anticipated. Neither Saxo Bank A/S or its officers, employees, representatives,

agents or independent contractors are in such capacities financial adviser. Saxo Bank A/S does not provide

investment or financial advice or make investment recommendations.

Trading Involves Risk: Trading options can be very speculative and may result in losses as well as profits.

You should carefully consider your financial situation and consult your financial advisors as to the

suitability of your situation prior to making any investment or entering into any transactions.

This disclaimer is subject to Saxo Bank Group's Full Disclaimer available at www.saxobank.com/disclaimer.

Options transactions are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. For more information, please read the Characteristics and Risk of Standardized Options brochure before you begin trading. Moreover, there are specific risks associated with buying options including the risk of the purchased options expiring worthless. Also, there are specific risks associated with selling cash secured puts including the risk that the underlying stock could be purchased at the exercise price when the current market value is less than the exercise price the put seller will receive. Because of the importance of tax considerations to all options transactions, the investor considering options should consult his/her tax adviser as to how taxes affect the outcome of each option strategy. Commissions and other costs may be a significant factor. This seminar is provided to you for educational purposes only. No information presented constitutes a recommendation to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. Pro Market Advisors do not offer or provide any opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objections, risk tolerance and liquidity needs. Supporting documents are available upon request. Securities products and services are offered by E*TRADE Securities LLC, Member FINRA/SIPC.

For more information please visit our website:

www.promarketadvisors.com

Iron Condors Workshop Description

Most investors' profits rely on a bull market,

whereas option traders and investors can profit in a

bull & bear. So what's a trader to do when the

market isn't going up or down? The solution: Iron

Condors. Join Shawn Howell of Pro Market Advisors

as he teaches you when and how to build your first

Iron Condor, how to recognize the appropriate

market conditions, and ways to manage risk with a

multi-legged option strategy.

TREND BASED TRADING Matching Strategy to Market Trend

Price

Time

HigherLows

HigherHighs

Price

Time

LowerLows

LowerHighs

Price

Time

Support

Resistance

Iron Condors Key Points

• A delta neutral, defined-risk strategy assuming a

stock/ETF or index will remain within a specific

support/resistance channel.

• Four legged option strategy combining an OTM

Bear Call and Bull Put spreads.

• Short Call Vertical Spread Placed Above

Resistance

• Short Put Vertical Spread Placed Below

Support

“RANGE BOUND” MARKET SENTIMENT Conditions Well-Suited for Iron Condors

• Market Sentiment = Chart defines Neutral/Rangebound market

• Clearly definable Support and Resistance Levels

• Ideally, the current price is equidistant from Support and Resistance

• Expecting Volatility to remain the same or decrease

• No “break-out” or “break-down” news over the horizon

IRON CONDOR EXAMPLE Example: Iron Condor Set-up

• Current price is 210.00

• Resistance @ 213

• Support @ 207

EXPIRATION

207

206

205

208

209

210

211

213

212

IRON CONDOR EXAMPLE “Writing/Selling” the Iron Condor

• Current price is 210.00

• Sell the 30 Day 213 Call for $2 & Buy the 30 Day 214 Call for $1.65

• Sell the 30 day 207 Put for $2.30 & Buy the 30 Day 206 Put for $2.00

• Net Credit of $.65 or $65/contract.

EXPIRATION

207

206

205

208

209

210

211

213

212

IRON CONDOR EXAMPLE Risk/Reward Profile

• Total Credit = $65/contract or per share $.65

• Max Gain of $65/contract at expiration when stock is <213 >207

• Risk = Width of spread ($1) – credit ($.65) Risk = $.35 or $35/contract

• Max Loss of $35/contract at expiration when stock is >214 or <206

• BEP $213.65 & $206.35

EXPIRATION

207

206

205

208

209

210

211

213

212

IRON CONDOR EXAMPLE Scenario #1 What You Want!

• Over 30 days the stock remains range bound closing at 208.5.

• All four legs of the Iron Condor “Expire Worthless”.

• $65/contract remains in account

EXPIRATION

207

206

205

208

209

210

211

213

212

IRON CONDOR EXAMPLE Scenario #2 Time to Close the Condor Early

• The first two weeks volatility increases and you start to “stress”.

• Close out the Iron Condor for Net Debit of (estimate) $.55

EXPIRATION

207

206

205

208

209

210

211

213

212

IRON CONDOR EXAMPLE Scenario #3 NOT the worst ending…

• Over 30 days the stock slowly climbs higher to 213.30, an hour before

the market close, the day prior to expiration.

• The Put Spread should “Expire Worthless”.

• The 213 Call is ITM by $.30. Buy Call to Close @ $.35

• How did the P&L for this trade work out?

EXPIRATION

207

206

205

208

209

210

211

213

212

IRON CONDOR EXAMPLE Scenario #4 Experiencing Maximum loss

• Over 30 days the price falls hard closing at 204 at Expiration.

• The Call Spread will “Expire Worthless”.

• The 207 Put is ITM but so is the 206 Put. The 207 Put gets “assigned”

and the 206 Put is “exercised”. “Same Day Substitution”

• How did the P&L for this trade work out?

EXPIRATION

207

206

205

208

209

210

211

213

212

Iron Condors Managing The Trade

• Ideally, all options will expire worthless at expiration.

• If price breaks through either support or resistance

consider closing the “threatened” spread to minimize

loss.

• If volatility increases dramatically, be prepared to close

both sides of the Iron Condor.

• Time is on your side with Iron Condors, don’t sweat the

lack of movement day after day, it’s what you want.

• Iron Condors are occasionally treated as “Binary”

positions and left alone until expiration.

Iron Condor Case Study SPY 90 Day Chart November 6, 2015

Iron Condor Case Study SPY 1 Point Wide Iron Condor Break Even Price = $215.38

$204.62

Max Gain $215<>$205 = $38

Max Loss >$216 = $62

<$204 = $62

Iron Condor Case Study SPY 5 Point Wide Iron Condor Break Even Price = $216.23

$203.77

Max Gain $215<>$205 = $123

Max Loss >$220 = $377

<$200 = $377

Iron Condor Case Study SPY December 4, 2015

Iron Condors

A Friend When There

is No Trend.