Iron Condor Trading on the SPX

An iron condor is simply a combination of a bullish and a bearish credit spread. This week I sold a bullish put spread and the market immediately traded away from it, moving higher.

If I sell a call spread above the market, I will not increase my total risk because only one spread can lose money at any given time. My broker recognizes this and will margin both credit spreads as one trade; i.e., an iron condor.

That's not all. Because I receive a credit for both the call spread and the put spread, the combined credit further offsets my risk. I received .70 for the bull spread spread. If I were to sell a call spread for .50, my total credit would be $1.20. On a 10 point spread, that reduced my risk to $8.80. Of course, with the increased credit you'll also see additional profits!

A large index like the S&P 500 is especially well suited to trading iron condors because it is less prone to erratic moves. So, if I can sell both the call spread and the put spread I like to do so.