Using Iron Condors to Create Profits Trading SPX

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The iron condor is set up using 4 separate option contracts – 2 calls and 2 puts. The iron condor has the following construction ratio: Long 1 Put/Short 1 put/Short 1 Call/Long 1 Call. Each of these two vertical spreads is constructed as a credit spread.  In our case, we are going to use the following strike prices for our example. Keep in mind, a trader willing to take more risk could use strikes which are closer for the potential of higher returns (more risk). On the other hand, those who are more risk averse could move the short strikes further apart for a lower return (less risk).

The chart below represents the profitability of an SPX iron condor using the following trade construction: Long 1 Sept (Quarterly) SPX 1050 Put/Short 1 Sept. (Quarterly) 1060 Put/Short 1 Sept. (Quarterly)1165 Call/Long 1 Sept. (Quarterly) 1170 Call. For further detailed information, prices used to produce this iron condor were based on the Thursday close and the midpoints of the bid/ask spread on all contracts. The profitability reflected below is based on a 1/1/1/1 setup. Obviously if a trader decided to add more contracts the max profit and loss would increase. Keep in mind, this example is for educational purposes only and is not reflective of intraday market prices.

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