 Hey everyone, welcome to another video lesson from navigation trading in this video I want to talk to you about the difference between a short strangle and an iron condor and The question that we get a lot from our members is when do I trade the short strangle and when do I trade the iron? Condor because they are very similar trades and that's what I want to break down And so let's start with a little bit of a comparison and then we'll jump on to the trading platform and show some actual examples So to start with when we put on either a short strangle or an iron condor We do both in a market neutral fashion meaning we don't care if the underlying stock goes up or down We just want it to stay in a specific range. So that's the same for both Also when we enter these we're entering with high implied volatility. So we want to sell a short strangle We want to sell an iron condor when implied volatility is high So that's the same for both Now is where we get into some of the differences first off the risk in a short strangle. The risk is undefined We're using naked options, which sometimes can make people nervous But I'll show you what the difference is and why that's important and then with an iron condor The risk is defined. So, you know exactly what you're risking on the trade when you enter it Next is the probability of profit when you enter a short strangle based on the way that we teach in our courses The probability of profit is typically around 70 percent or higher with a short strangle Where the probability of profit is a little bit lower with the iron condor at about 60 percent So you have a higher chance of making money with a strangle then you do an iron condor Next is the profit potential when you sell a strangle typically you're collecting more credit Giving you a higher profit potential with an iron condor. You're collecting less credit. So your profit potential is a little bit lower As far as where you can trade short strangles traditionally have been Uneligible for IRAs however tasty works has come out with the ability to trade naked Positions in your IRA. So if you do have tasty works as your broker and they are one of our preferred brokers Then you can trade them in an IRA and then iron condors for the most part across any broker can be traded in an IRA Next is our permission levels So when you apply for an account and you open an account at a brokerage You have to get permission to trade certain levels with a short strangle You have to have what's called tier three permissions to trade naked options and with iron condors You just have to have tier two permissions so that you can trade to find risk spreads And lastly with short strangles gonna use a larger amount of capital Whereas with an iron condor you can place smaller trades that use less capital So those are some of the differences. Let's go to the platform and tie this all together to make sure it makes sense So I'm gonna look at two different underlying symbols The first one we're looking at is SPX and if you're in thinkorswim platform We like to use our analyze tab because I'm a very visual person and I know a lot of our members are as well So it helps kind of introduce the concepts and helps you grasp the concepts a little better So what I've done here is I have put together a short strangle to begin with and you can see down here I've checked on just the short strangle box So that's what we're looking at if you look at the break-evens We put on the price slices at the break-even point of the zero line We'll see is that in this case the probability of profit if you held it all the way to expiration is a little over 63% so it's a little lower than the 70% that we talked about but what I want you to take away from this is that you've got a profit potential with one contract of $2,660 which you can see in the teal colored in the little black box over here to the left So remember that number twenty six sixty. That's our max profit now if we uncheck the strangle box And we check the iron condor now you'll see what happens a couple things one We've got defined risk. You can see these wings on either side I mean if price explodes to the upside or crashes to the downside we have this defined risk amount The profit potential as you can see if you're still looking at that teal number down in the bottom left is $735 so our profit potential is less than a third That of a strangle so our profit potential is lower But what we get in return is that defined risk So if you're nervous about undefined risk You can define the risk by just buying these wings and trading an iron condor The other thing I want to point out is look at our price slices their way out here However, we have to move them in to the breakeven points for the iron condor So let's just move those in and see what that does to the probabilities You can see that went from over 63% probability down to 55. Okay, so remember I told you you have a lower Probability of profit with an iron condor Whereas the short strangle has a higher probability and a higher profit potential, but you're looking at undefined risk so there's always a trade-off between risk and reward and it's not that there's one That's better than the other a short strangle is not better than an iron condor It's just dependent on what you are looking to trade from a capital usage from a defined risk The type of trading account you have and so forth The one last thing I want to show you on this example is if we right-click on the iron condor hit confirm and send It'll bring up this box showing what our buying power effect is So it's gonna cost us $2,269 of buying power to put on the iron condor trade So let's exit out of that and let's look at what the difference is with the short strangle So if we right-click hit confirm and send with one contract for a short strangle We would have to put up over $49,000 Okay, so I don't care if you're trading a six-figure or seven-figure account trading a short strangle in SPX Which is currently trading at nearly $2,900. It's just really not an efficient use of your capital So if you're trading extremely high priced underlying symbols like SPX Then you're typically gonna trade an iron condor You're gonna define the risk as well as it's just a more efficient use of your capital So those are the different things you look at the price of the symbol your trading permissions the probability of profit your max potential Profit your defined versus undefined risk And those all are the things that you want to take into consideration when choosing which to trade Let's go to one more example and let's take a look at EWZ, which is the Brazilian ETF Now look at the difference in price of what these symbols are trading at SPX is trading at nearly 2900 at the time of this recording and EWZ is trading at a little over thirty two dollars a share. Okay, so that's a massive difference, right? So let's take a look at the analyze tab here and see what the difference is Let me change this to match up with our expiration date Which is 10-20 so we get some accurate readings So let's look at the iron condor first and what you'll see is that we've got a probability of profit of about 68% That's good. We've got our defined risk wings as you can see here So the max risk with one contract is just a hundred and thirty six dollars This can be done in really any size account small accounts large accounts. It doesn't matter and again We're just looking at one contract. So we've got a defined risk max loss of a hundred and thirty six a Max potential profit of sixty four dollars Okay, so the lower the price the symbol the less capital you're gonna use and the lower Potential profit you're gonna have as well Now let's look at the short strangle So if we click on that what you'll see is our break evens have widened out So we need to move our price slices to get an accurate reading here and Move it over here and then what you'll see is now look at our probability of profit It jumped up to seventy four percent. So remember on a short strangle You have a higher probability of profit and now look at our max profit potential with the teal number down here in the box Is a hundred and thirty dollars. So now we have a much higher Profit potential about three times the credit about three times the profit potential With the short strangle versus the iron condor and of course with that comes undefined risk Which if you've taken our courses, you know that there are ways to mitigate that risk and minimize that risk Even when you're trading undefined strategies Okay, so lastly, let's do the same thing as we did with SPX Let's go down and take a look at what the buying power would be let's start with the short strangle We can right-click hit confirm and send and you'll see for even for a short strangle with undefined risk The buying power effect the amount of capital it takes to put this trade on is a little over 326 dollars. Okay, so not not too bad Now of course if we go to the iron condor, it's gonna be even less hit confirm and send and the buying power It takes is a hundred sixty one dollars and fifty cents. Okay, so you can see the difference Between the two there's not a right way or a wrong way to do this The only thing you got to make sure is it an efficient use of capital Are you collecting amount of credit that you want to trade? So for example, one of the things that we shy away from is trading iron condors on these low price symbols Because if you look I mean the max profit we can make with this on one contract is 64 bucks Remember with an iron condor it's four different legs. You've got four different options You're trading so you got to pay commissions on each one of those as well So it's a little bit higher transaction cost whereas a strangle is only two contracts So you're paying less transaction costs entering the trade and exiting the trade So you want to take that into consideration and understand if you're gonna trade an iron condor Just make sure the amount of credit you're receiving is worth the risk and the transaction costs involved with the trade So those are kind of two different extreme examples one of a very high priced symbol at twenty nine hundred dollars I wanted a very low price symbol at thirty two dollars and the difference between the two So let's go back to the slides and recap this one more time and Kind of give you some takeaways give you your decision-making criteria for choosing a short strangle versus an iron condor one Do you prefer to find or undefined risk? Are you okay with that unlimited risk component or are you more comfortable with the find risk? If you're more comfortable with the find risk you want to go with the iron condor with undefined risk You want to go with the short strangle. Is it the best use of capital? So if you're trading a high-priced underlying like SPX or Amazon or something that's that's a very high price You're probably gonna use an iron condor because it's just a better use of capital But on some of these lower price symbols You may opt to use a short strangle because you're not using too much buying power and you're getting a better credit So the symbol price comes into that account as well And lastly, what type of account are you trading? Do you have the capability to trade undefined risk if you're in an IRA versus a margin account? If you're in an IRA a lot of times most brokers only allow you to trade iron condors and you can't trade Undefined risk or short strangle so depends on your account type as well So that's it. I hope that was helpful in helping you determine Which is better for you a short strangle or an iron condor talk to you in the next lesson