What is the advantage of using a regular credit spread ( bull put or bear call spread ) over an iron condor? The profit in an iron condor will be at minimum be same as a simple credit spread( when one side gets struck) and at most much more than a simple credit spread when the market stays flat.

If we have low commission cost broker like interactive broker, why would I ever want to do a bull put or bear call spread over an iron condor.

  • I'm probably not understanding, but the profit for a bull put spread remains at its maximum value no matter how high the underlying goes. For an iron condor, the profit decreases if the underlying goes too high. Am I missing something? – user1731 Oct 27 '14 at 16:56

They are two completely different trades and should be used for different purposes.

If you are doing a credit spread you (should) have an opinion about market direction and the spread will benefit from you being correct. Also, remember that with a credit spread (bull call for example) the underlying price can go up and up and up to the moon and you will always just collect the maximum credit. This will NOT happen with an iron condor.

With spreads you can collect your max credit to the up or downside based on the type of spread, as long as it goes the direction you bet on. With condors you want the underlying to be range bound, or more specifically, not to exceed the short strikes of your condor.

So you would want to do a bull put or bear call spread when you believe the market can move in a particular direction AND you don't need to worry about how much it is likely to move in that direction. So if you were bullish on a new tech company it would be fine to put on a bull call spread, if it shoots up 300% tomorrow you are very happy...if you had a condor on at the same strike(s) you would not be very happy and would likely have lost the maximum.

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