Spinning Iron Condors - Riding The Iron Condor Option Spread To Net Option Money

To generate consistent cash-flow from the trading markets with out having to 'guess' or know near term market direction, there are a variety of different option techniques that option investors can use.

Several examples include: the calendar spread, the iron condor spread, the butterfly spread, the double diagonal, and the credit spread - also known and referred to as the vertical Spread.

The vertical spread (or credit spread) is a foundational trade that can be found in many other option income strategies. The iron condor spread is in actuality just two vertical spreads placed on either side of where the market is trading.

Also take a look at the butterfly. This strategy is comprised of verticals as well. One in the upper half of the position and one in the lower half. Also the iron butterfly is made up of two credit - or vertical spreads. A put vertical and a call vertical - both sold at a credit.

Vertical spreads can be used with both put and call options. A bearish vertical is called a bear call spread, which is placed using calls above where the underlying vehicle is currently trading at. A bullish play is called a bull put spread, which is a vertical spread using puts placed below where the stock or index being used is trading at.

Here is a hypothetical example of a bear call vertical spread...

Sell 1 ABC Stock 75 Put Option Buy 1 ABC Stock 70 Put Option

The vertical spread in the example above is a bearish position. Our hypothetical trader who placed this trade believed that RIMM would be moving lower - or staying in it's general vicinity on the chart.

This position is called a bull put spread due to the fact that even though the position is created using put options, it is being placed in such a way that generates a profit if and when the stock being used moves bullishly.

As long as the outlook on this trade is correct and RIMM stays where it is at or heads downwards, this trade will 'win' and the initial credit received when the trade was first placed will become the profit. Also keep in mind that this strategy can be used with both call options and put options at the same to build what is called an iron condor trade.