Unbalanced Iron Condor Strategy

Understanding the Unbalanced Iron Condor

An unbalanced Iron Condor is a sophisticated options strategy that modifies the traditional Iron Condor by using different quantities or widths for the call and put spreads. This adjustment allows traders to better align their positions with their market outlook, especially when they expect the underlying asset to exhibit a directional bias rather than staying perfectly neutral.

Structure of the Traditional Iron Condor

In a standard Iron Condor, a trader sells an out-of-the-money call spread and an out-of-the-money put spread with equal widths and quantities, typically expecting the underlying asset to stay within a specific price range until expiration. The profit is maximized if the underlying asset remains within this range, leading both the call and put spreads to expire worthless, thus allowing the trader to retain the premium received.

Modifying for Unbalance

With an unbalanced Iron Condor, the trader adjusts either the widths or the quantities of the call and put spreads to reflect a bias. This bias can be based on market outlooks, such as expectations of a slight bullish or bearish movement, or simply a preference to adjust the risk-reward dynamics of the trade.

Let’s delve deeper into setting up an unbalanced iron condor using Apple (AAPL) as an example, considering the MID prices for calculations.

Apple is trading at $190, and we are using the option chain with 56 days to expiration. Here’s the current price table for reference:

We will sell 20 call options at a strike price of 200 and buy 20 call options at a strike price of 205. For the put side, we will sell 20 put options at a strike price of 180 and buy 20 put options at a strike price of 175.

To calculate the mid prices for the options, we take the average of the bid and ask prices: