Iron Condor Losses: Frequently Asked Questions (FAQs)

The Sonn Law Group is Investigating Claims for Investors Who Suffered Losses With the Iron Condor Options Strategy

What is an Iron Condor Trade?

An iron condor is a complex investment strategy that involves a series of options trades.

Indeed, to carry out this strategy, an investor must purchase both put and call options — one of each at the high end of an expected trading range and another at the low end of an expected trading range.

As long as the underlying security stays within the selected range, then the iron condor strategy will produce a small profit for the investor. In a period of low market volatility, a properly constructed iron condor strategy typically does fine.

Is the Iron Condor Options Trade Safe?

No — not necessarily. Iron condor options trades fail when market volatility increases. While the iron condor strategy and other yield enhancement strategies will generate a small amount of profit most of the time, they also carry the potential for very large investment losses. In fact, the losses from failed iron condor trades are generally several times larger than the potential profits. Remember, with an iron condor strategy, the investor’s potential gains are capped.

What is an Example of an Iron Condor Trade?

Imagine that you want to construct an iron condor options trade for Company ABC. Currently, the stock price for this firm is $100 per share. To build the iron condor trade, you could buy four different stock options. For example, you may:

● Buy a put at $80 per share;
● Sell a put at $90 per share;
● Sell a call at $110 per share; and
● Buy a call at $120 per share.

Assume that you initiated this iron condor options trade with 30 days until expiration. The strategy will allow all four options to expire. With the structure of the trade, as long as Company A’s stock price closes between $90 and $110, the investor will make a small profit. However, if the price goes outside of that range, the investor would suffer significant losses.

Summary: An iron condor trade is simply a bet that a stock’s price will stay within a certain range. When it does, the investor makes a small profit. If it does not, the investor suffers losses that are steeper than the potential profit.

Am I Eligible to Recover Compensation for Iron Condor Losses?

To recover compensation for investment losses, you must be able to demonstrate that your financial advisor or brokerage firm is liable for your damages. With iron condor claims, investors frequently allege that their broker-dealer failed to properly explain the risks associated with this investment.

Indeed, in some cases, iron condor trades are marketed to investors as a safe and conservative way to produce additional income. This is misleading without further context. As was demonstrated, this strategy also has the potential to produce serious losses. If you were recommended an iron condor strategy, you may be eligible to recover compensation through an unsuitable investments claim.

Contact Our Securities Fraud Lawyers Today

At Sonn Law Group, we are currently investigating claims involving the iron condor strategies. Our attorneys advocate for the rights of investors against financial advisors and brokerage firms. To set up a free, no obligation initial consultation, please contact our legal team today. We represent investors nationwide.

Sonn Law Group has a great deal of experience in representing investors who have sustained losses due to the negligence or misconduct of their broker and/or brokerage firm, including cases involving complex options strategies. We will aggressively pursue claims to recover your Collateral Enhancement Strategy or other investment losses. If you are looking for an investment fraud attorney to review your rights and options, the lawyers at Sonn Law Group represent individual and institutional investors who have lost money as a result of unsuitable investment advice, negligent advice, investment fraud or stockbroker misconduct. Our attorneys have helped to recover more than $250 million in assets lost to investment fraud, securities fraud, Ponzi schemes, and stockbroker misconduct.