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Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Strategy
Advanced, Speculation
Reverse Iron Condor
Debit version of Iron Condor – profit from a large movement of the underlying.
Detail
Reverse Iron Condor is a strategy made up of two debit spreads: a bull call spread and a bear put spread. It makes money if the price of the underlying rises or falls sharply. Limited profit and loss. Suitable if we expect a large movement in both directions.
The strategy consists of a bull call spread (buy a call with a lower strike, sell a call with a higher strike) and a bear put spread (buy a put with a higher strike, sell a put with a lower strike). All options have the same expiration. If the underlying price moves significantly outside the strike range, the strategy achieves maximum profit. If it remains within the range, the premium paid is lost (max loss). The strategy is suitable if we expect high volatility, a large movement, but we do not know the exact direction.
Optimal conditions
Ahead of the expected major market movement (earnings, macro data, FOMC), amid increased uncertainty.
Max profit
The difference between the strike spread minus the premium paid.
Max loss
Premium paid upon entry. Limited, known in advance.
Risks
Limited loss if the underlying price stays within the range between the strike prices (strikes of the options sold). The risk that the market will not move enough to cover the premium paid.
Greeks
Delta neutral (close to 0), Gamma positive (profits from movement), Theta negative (time works against), Vega positive (profits from increasing volatility).
Variations
Wide Reverse Iron Condor (larger strike distance for greater potential profit, higher costs), Narrow Reverse Iron Condor (smaller spread, cheaper, but lower profit).
Usage example
On SPY before the Fed results: Buy put 390, sell put 385, buy call 410, sell call 415, expiration in 30 days. Speculation on strong market movement.
DTE
Usually 20–40 days until expiration (optional depending on the situation).
IV (implied volatility)
Ideal to open at low IV with subsequent rapid growth, as market movement and IV growth play in favor of the position. Profit from the growth of volatility.
Premium
Debit – payment of premium for entering a position
Margin
Limited by spread risk – the difference in strike spread.
Notes
A strategy suitable for speculating on a large movement when the direction is unknown. It is necessary to choose the strike range carefully. With a small movement, there is a risk of losing the entire premium paid.
Tags
reverse iron condor, debit spread, strategy, large move, limited risk, limited profit
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