As the market swings wildly up and down (and down), Iron Condors have been a tough trade to manage. I've heard from many people over the past two months about Iron Condors being blown to shreds with the volatility and overall bearish trend of the market. So if you're sick of this market "skewing" you, "skew" it back! Let me explain.

A regular Iron Condor is the combination of a short put vertical and a short call vertical. This Iron Condor has the same width between strikes for each vertical and has the same number of contracts as well. An example would be as follows on SPY:

With the above Condor, one would need the SPY to trade between 110 and 86 to make money. This is fine if your directional bias is neutral and you don't believe the market will move much. For a market-neutral trader, this is perfect. However, for those traders who are more directional, whether bullish or bearish, what would you do to make your Iron Condors more directional? Here are some simple adjustments:

If you are Bullish: Skew the strikes on your short call spread and make them $1.00 wide instead of $2.00 wide. Here's what it looks like on the Trade Tab:

The below figure is the risk profile on the above trade. As you skew it bullish you remove some of the risk to the upside. If the SPY goes through your call spread, your loss will be $40.00 ($1.00 spread - $0.60 credit) compared to risk of $140.00 if the SPY blows through your put spread ($2.00-wide spread - $0.60 credit). This type of skew makes sense if your bias is to the bullish side. You also keep your sweet spot if the SPY does trade market-neutral.

If you are Bearish: Skew the strikes on your short put spread and make them $1.00 wide instead of $2.00 wide. The risk profile would be similar to what you see above, but skewed bearish.

Now as you read this, if you're thinking to yourself, "it would be awesome if I can somehow remove all risk to the upside or downside," I say to you, hah, no problem! To do this, just ratio your spreads 2:1. Let me explain. On the above Skewed Condor you have 1 contract of each vertical. If you are bullish, you would simply sell 2 put spreads to the 1 call spread. Here's what the trade looks like on the Trade Tab:

As your credit goes to $1.10, here is what your new risk profile looks like:

As you can see, no matter how high the SPY goes, you're making $0.10 ($1.10 credit - $1.00-wide spread). If the SPY does blow through your put spread, you're losing $290.00 ($4.00-wide risk - $1.10 credit). You also have the market-neutral sweet spot from 110 to 85 that you can make the $110.00. That is a high probability Skewed Iron Condor.
If you are bearish, ratio your call spread in the opposite way to remove the downside risk.

Things to Remember:

Beware that as you ratio this type of spread, it doesn't remove the risk to the skewed side every time. You may have to do a 3:1 or 4:1 ratio, which may not be worth it. You must also be careful when doing this by understanding the risk you are adding to the trade. Position the size around your max loss so as not to exceed your maximum loss exposure.

So if you're a trader that has some sort of directional bias but still want a market-neutral sweet spot, skewing your Iron Condors could be the trading style for you.

Happy Trading!

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