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If you’ve been trading options only on stocks, it’s time to branch out a little and learn how to make money in the futures market. This article will show you how to sell a four-leg option strategy on natural gas futures.
The Short Iron Condor
The iron condor strategy consists of four legs, which can be considered as two distinct strategies: one is a put spread, and the other is a call spread. The put spread consists of one long put and one short one; while the call spread has one long call and one short. Here’s what the short iron condor looks like in summary form:
Buy 1 NG 2.65 put
Sell 1 NG 2.70 put
Sell 1 NG 2.85 call
Buy 1 NG 2.90 call
If you wanted the long version, you would just switch the trade action (buy becomes sell and vice versa) for each contract. The price of the underlying asset should be between the two middle strike prices. Because you’re selling the iron condor, you will receive a net credit at the start of the trade.
You should only enter the short iron condor spread when you’re neutral on the underlying asset. Your net credit will remain a profit if the futures contract moves sideways. But if it moves either up or down too much, the credit will turn into a loss at the expiration of the options.
At Dorian Trader, we help traders of all levels get started, improve and, ultimately, make more money with options.
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