I am often asked how I find stock in which to enter into the Iron Condor strategy. Not every strategy works with every stock in every kind of market, but I have a set of guidelines or criteria I use when looking for those stocks.
#1 use stocks you would buy 100 shares of in your retirement account
#2 use very liquid stocks near $100 or higher: Examples would be AAPL, NFLX, AMZN, GOOGL, PNRA, XOM, DIS, IBM, TSLA, LNKD, PCLN, etc.
#3 If I did 4 stock Iron Condors every month, I would trade 2 with implied volatility levels under 25 and 2 with implied volatility levels over 25.
#4 Diversify Stock iron Condors into at least 2 different industries
A good example would be Apple, Inc. (AAPL, $124) Looking at June 5 Expiration.
Criteria #1: Aaple is a stock I would buy 100 shares in my retirement account.
Criteria #2: Very Liquid stock, AAPL trades around 200,000 option contracts daily, dwarfing most other stocks in Options Volume. Also, AAPL is high enough price, currently at $124.
Criteria #3: AAPL implied Volatility is around 25 for at-the-money calls, I like stock Iron Condors around 25 level.
Criteria #4: If I was putting more Iron Condors on in stocks, I would add stocks from different industries than AAPL.
Iron Condor Trade in AAPL:
Stock around $124.
June 5 expiration, around 30 days from now.
Buy 1 AAPL 138 strike call and sell 1 AAPL 133 call
Buy 1 AAPL 110 strike put and sell 1 AAPL 115 put
Total Credit for 1 Contract of $110. Total margin or risk for 1 contract Iron Condor is $390.
Note: This is a $5 call credit spread and $5 put credit spread. Margin is $500 less $110 credit, or $390 per Iron Condor, plus commissions.
Breakevens are $139.10 (short 138 call plus $1.10) and $113.90 (short 115 put less $110). Maximum loss is $390. If AAPL stays within this range for the next few weeks I would not hesitate to close this position early.
Thanks, Dan Sheridan firstname.lastname@example.org