In the video titled “This Is How You Become Consistently Profitable With Iron Condors” by Options with Davis, you will gain valuable insights into selecting the optimal strike price for iron condors. The video covers two main aspects: selecting the short legs and selecting the long legs. You can choose the strike prices for the short legs based on price levels or by using the expected move formula. It is found that strike prices based on the expected move tend to be more profitable. For the long legs, you can either use a fixed width or expand the width to match your risk tolerance. Ultimately, the choice of strike prices depends on your individual goals and risk tolerance. Make sure to watch the video for a detailed explanation and guidance on this topic!
Selecting the Right Strike Price for Iron Condors
Choosing the right strike price is crucial when trading Iron Condors. The strike price determines the range in which your trade can be profitable, so it’s important to make an informed decision. Selecting strike prices can be broken down into two parts: choosing strike prices for the short legs and choosing strike prices for the long legs.
Importance of choosing the right strike price
The strike price is the price at which the option can be exercised. It determines whether the option will be profitable or not. When trading Iron Condors, the goal is to have the price of the underlying asset stay within the range of the short strikes. Choosing the right strike prices will increase the probability of the trade being successful.
Two parts of selecting strike prices: short legs and long legs
When trading Iron Condors, there are two parts to consider when selecting strike prices: the short legs and the long legs. The short legs define the inner range of the Iron Condor, while the long legs define the outer range. It’s essential to choose strike prices that create a balanced Iron Condor and align with your risk tolerance and investment goals.
Selecting Strike Prices for Short Legs
The short legs are the strike prices at which you sell the options. When selecting strike prices for the short legs, there are two primary methods: selecting based on price levels or using the expected move formula.
Using Price Levels for Short Leg Strike Prices
One method of selecting strike prices for the short legs is to choose based on price levels. This involves identifying support levels below the current price and resistance levels above the current price. By choosing strikes beyond these levels, you increase the probability of the trade staying within a profitable range. However, it’s important to consider the premium received for these strikes and find a balance between proximity to market price and desired premium.
Using Expected Move Formula for Short Leg Strike Prices
The expected move formula is a mathematical calculation that estimates the range in which the underlying asset is expected to be in a certain timeframe. This can be a useful tool for selecting strike prices for the short legs of an Iron Condor. By choosing strikes at the expected move, you increase the probability of the trade being profitable. Studies have shown that the realized move is often smaller than the expected move, making strike prices at the expected move more profitable. This information can be found in the option chain or by using the 16 Delta option.
Selecting Strike Prices for Long Legs
The long legs are the strike prices at which you buy the options. Choosing strike prices for the long legs is crucial in determining the width of the Iron Condor. There are two primary methods for selecting strike prices for the long legs: using a fixed width or expanding the width based on allocated risk.
Using a Fixed Width
One method of selecting strike prices for the long legs is to use a fixed width. This involves choosing a predetermined distance from the short strikes and using that as the width of the Iron Condor. This approach can provide a clear and consistent strategy, but it may not account for individual risk tolerance or market conditions.
Expanding the Width Based on Allocated Risk
Another method for selecting strike prices for the long legs is to expand the width based on allocated risk per trade. This approach takes into account your desired risk tolerance and allocates a specific amount of risk for each Iron Condor trade. By expanding the width of the wings, you increase the probability of profit and potentially reduce risk compared to using tight wings. This approach allows for flexibility and customization based on individual risk tolerance and investment goals.
Benefits of Expanding Wing Width
Expanding the width of the wings in an Iron Condor trade offers several benefits. First, it reduces risk compared to using tight wings. By increasing the distance between the short and long strikes, you create a wider profit range, increasing the probability of profit. Additionally, expanding the width allows for more potential profit if the underlying asset stays within the widened range. This approach provides flexibility and can be adjusted to align with your risk tolerance and investment goals.
Considerations for Individual Risk Tolerance and Investment Goals
When selecting strike prices for Iron Condors, it’s important to consider your individual risk tolerance and investment goals. The choice of strike prices should align with your comfort level in terms of potential risk and desired profit potential. It’s crucial to find a balance between risk and reward and choose strike prices that reflect your personal preferences.
Accessing the Options Income Blueprint
Options with Davis offers a video titled “This Is How You Become Consistently Profitable With Iron Condors,” which provides detailed information on selecting the right strike price for Iron Condors. Viewers can also access the Options Income Blueprint for free, which offers further guidance on options trading techniques. The Options Income Blueprint can provide additional tools and strategies to enhance your understanding and success with Iron Condors.
Conclusion
Choosing the right strike price is essential when trading Iron Condors. By selecting strike prices for the short legs based on price levels or the expected move formula, you increase the probability of profit. Choosing strike prices for the long legs by using a fixed width or expanding the wings based on allocated risk can further enhance your success. It’s crucial to consider your individual risk tolerance and investment goals when making these decisions. Accessing resources like the Options Income Blueprint can provide further guidance and help improve your understanding of options trading techniques.