Skewed Iron Condors Explained (Unbalanced Iron Condor)
Skewed iron condors are a type of option strategy that can be used to profit from a directional bias in the underlying stock.
Unlike the traditional iron condor, which is a neutral trade, a skewed iron condor turns one side of the trade wider than the other, creating a positive or negative delta.
In this article, we will explain what a skewed iron condor is, how it differs from an iron condor, and how to trade a bullish or bearish skewed iron condor.
What is a Skewed Iron Condor?
A skewed iron condor (unbalanced iron condor) is an option strategy that consists of four legs: selling an out-of-the-money (OTM) put, buying an OTM put with a lower strike price, selling an OTM call, and buying an OTM call with a higher strike price.
This creates a put credit spread and a call credit spread, which are both bullish and bearish strategies, respectively. However, unlike the traditional iron condor, which has the same width of strikes on each side, a skewed iron condor makes either the put credit spread or the call credit spread wider than the other.
This means that one side of the trade will have more risk and reward than the other, creating a directional bias.
For example, let’s say that XYZ stock is trading at $100, and you want to set up a skewed iron condor with 30 days to expiration. A normal iron condor would consist of selling the $95 put, buying the $90 put, selling the $105 call, and buying the $110 call.
This would create a 5-wide put credit spread and a 5-wide call credit spread, or a regular iron condor.
A skewed iron condor would mean that one side of the trade would be larger than the other.
For example, you could sell the $90 put, buy the $80 put, sell the $105 call, and buy the $110 call. This would create a 10-wide put credit spread and a 5-wide call credit spread.
By making the put credit spread wider, you will increase your profit potential and your risk on that side of the trade. This is how a skewed iron condor turns a neutral trade into a directional trade.
Skewed Iron Condor vs. Iron Condor
The main difference between a skewed iron condor and a traditional iron condor is that a skewed iron condor has a directional bias, while an iron condor does not. A skewed iron condor makes one side of the trade wider than the other, creating either a positive or negative delta.
A positive delta means that the trade will benefit from an increase in the underlying stock price, while a negative delta means that the trade will benefit from a decrease in the underlying stock price.
A traditional iron condor has no directional bias, as it has equal width of strikes on both sides of the trade. An iron condor is essentially a combination of a bull put credit spread and a bear call credit spread, which forms a neutral strategy that profits from time decay and volatility contraction.
An iron condor is one of the most popular option strategies for traders who want to take advantage of sideways markets.
Trading a Bullish Skewed Iron Condor
To make a bullish skewed iron condor, you can set it up by making the put credit spread wider than the call credit spread. This will make the trade positive delta, meaning that it will benefit from an increase in the underlying stock price. A bullish skewed iron condor is also known as an unbalanced iron condor.
For example, let’s say that ABC stock is trading at $50, and you want to set up a bullish skewed iron condor with 30 days to expiration. You could:
Sell the $45 put and buy the $35 put to create a 10-wide put credit spread worth $4
Sell the $55 call and buy the $60 call to create a 5-wide call credit spread worth $1.50
Receive a net credit of $5.50, which is the maximum profit of the trade
As you can see, by making the put credit spread wider, you have increased your profit potential and your risk on the bullish side of the trade.
Trading a Bearish Skewed Iron Condor
To make a bearish skewed iron condor, you can set it up by making the call credit spread wider than the put credit spread. This will make the trade negative delta, meaning that it will benefit from a decrease in the underlying stock price.
For example, you could:
Sell the $105 call and buy the $115 call to create a 10-wide call credit spread worth $5
Sell the $95 put and buy the $90 put to create a 5-wide put credit spread worth $2.50
Receive a net credit of $7.50, which is the maximum profit of the trade
As you can see, by making the call credit spread wider, you have increased your profit potential and your risk on the bearish side of the trade.
Get Hands-on Help With Options Trading
Skewed iron condors are an advanced option strategy that can help you profit from directional moves in the underlying stock. However, they also require careful risk management and adjustment skills, as they are different from traditional iron condors.
If you want to learn more about how to trade skewed iron condors and other option strategies, you can join the HaiKhuu Trading community. HaiKhuu offers free live voice calls, daily morning reports, and a community of like-minded traders who will help you become a more confident trader.
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FAQ
Skewed Iron Condor vs. Credit Spreads
A skewed iron condor is similar to a credit spread in that it involves selling an OTM option and buying an OTM option with a lower or higher strike price. However, a skewed iron condor has two credit spreads on both sides of the trade, while a credit spread has only one. Both strategies benefit from a decrease in volatility.
