When trading an iron condor, because we are executing a short call spread and put spread at the same time, this will cost us twice as much money held by our investment bank in reservice?
1. True
2. False
The investment bank will only hold money for one side of the trade, because it is a mathematical certainty that we will win at least one side of the trade. The stock cannot be in two separate places at once, so one side is a guaranteed winner.
If we were to sell a 40/45/55/60 iron condor, (selling 45 put, buying 40 put, selling 55 call, buying 60 call), for $2.75, what would be our max loss on the trade?
1. $2.25
2. $3.25
3. $5.00
The max loss is calculated by subtracting the premium received from one of the strike widths. (45-40) – 2.75 = $2.25
If we were to sell a 40/45/55/60 iron condor, (selling 45 put, buying 40 put, selling 55 call, buying 60 call), for $2.75, what are our breakevens?
1. $42.25 and $57.75
2. $42.50 & $57.50
3. $42.75 & $57.25
To calculate the breakevens, you add the premium received to the short call and subtract the premium received from the short put. 55 + 2.75 = $57.75 & 45 – 2.75 = $42.25