Find out how prop trading differs from retail trading and how certain trading mechanics are the same!
A Big Boy Iron Condor is an Iron Condor in which the width of the spreads are very wide. This emulates a short strangle with defined risk.
Directional Assumption: Neutral
- Sell OTM Put Spread (>5pt wide)
- Sell OTM Call Spread (>5pt wide)
Ideal Implied Volatility Environment : High
Max Profit: Credit received
How to Calculate Breakeven(s):
- Upside: Short Call Strike + Credit Received
- Downside: Short Put Strike - Credit Received
We approach Big Boy Iron Condors with similar entry tactics to a regular Iron Condor. We shoot for collecting 1/3rd the width of the strikes in premium upon trade entry. For example, if we have an Iron Condor with ten point wide spreads, we will look to collect $3.00 for the trade. This gives us a probability of success around 67%, which is acceptable to us.
When do we close Big Boy Iron Condors?
When we delve into wider iron condors, we open up our closing opportunities from 50% to 25-50%. Since we’re usually collecting a larger credit, we have shown 25% as a profitable closing point as well with previous studies. It will be up to you to determine what your mechanical closing point will be.
When do we manage Big Boy Iron Condors?
We manage big boy iron condors in the same fashion as regular iron condors. We look to roll the untested spread up to collect more premium. We can go as far as rolling our untested spread up to the same short strike as our tested spread, which creates an Iron Fly. Check out this study for more detail on this management tactic!
tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.
tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”). tastytrade is a trademark/servicemark owned by tastytrade.
Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.
Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.