The Double Iron Condor strategy is a variation of the standard Iron Condor, involving two separate Iron Condor setups on the same underlying asset.
This strategy can be complex and is typically suited for advanced traders. Let’s break down the two Iron Condor setups you provided and analyze their impact when combined.
Let’s start with an example straight ahead –
Iron Condor 1
Iron Condor 2
Both of the payoff graphs are plotted in the range of 21000 and 22500.
Now, if we combine the both, We get –
Another iron condor-like shape but the profit and loss graph became more roundy!
Increased Range of Profit: The combination of these two Iron Condors increases the range in which the strategy can remain profitable.
Premium Collection: There’s an opportunity to collect more premiums, potentially increasing the profit.
Risk Management: Risk increases as the strategy now involves managing four spreads instead of two.
Market Conditions: Best suited for markets with low to moderate volatility, where drastic price movements are not expected.
Trade Management: Requires diligent monitoring and potential adjustments. The complexity increases with the number of spreads involved.
But again, if we select another iron condor that is far off the option chain, will it become a Batman-like payoff graph?
Let’s replace Iron Condor 1 with an iron condor with deep OTM options –
Realistically it is an alarming bad trade but we are having a theoretical discussion. As suspected, The payoff graph for this looks pretty weird!
Almost like Van Helsing of Hotel Transylvania movie –
This is also called Iron Albatross Spread. The “Iron Albatross” spread is so named because of the resemblance of its profit and loss (P&L) graph to the wide wingspan of an albatross.
So, Now, if we merge this with our Iron Condor 2 earlier, We get –
Even though there was an initial expectation of a Batman-like figure with tabletop ears rather than pointy ones, we ultimately ended up with a payoff graph resembling the Konark Sun Temple.
The Iron Condor strategy is a short strangle with a stop loss on both ends. It means we can not make any combination that will generate a payoff graph like our favorite Batman.
Similarly, Double Iron Butterfly = Double Straddle (Near OTM) + Double Long Strangle (Far OTM)
We have already established,
So, We can conclude –