Options AI Support
HomeLoginDisclosuresLearnDownload iOS
  • SUPPORT
  • GENERAL
    • About Options AI
    • Why we built Options AI for Spreads
    • How Options AI does Spreads
    • Account & Data Protection
    • Applying for an Account
    • Deposits & Withdrawals
    • Trading on Options AI
    • Reporting a Problem
    • Paper Trading
  • TRADING PLATFORM
    • Ways to Trade
    • Category Lists
    • Trade Scanner
    • Expected Move
    • Probability of Profit
    • Comparing Trade Strategies
    • Editing Option Strikes
    • Trade Management Tools
  • TRADING SUPPORT
    • Expiration, Exercise & Assignment
    • Early Assignment
    • Liquidity & Execution
    • Legging-out of Spreads
    • Margin Requirements, Available Funds & Account Value
    • Pattern Day Trading (PDT)
    • Trade Confirmation
  • EDUCATION
    • Spreads 101
    • Strategies
      • Debit Call Spread
      • Credit Put Spread
      • Credit Call Spread
      • Debit Put Spread
      • Iron Condor
      • Iron Butterfly
  • Tools
    • Tools FAQ
Powered by GitBook
On this page
  1. TRADING SUPPORT

Legging-out of Spreads

Why might closing only one side of an Iron Condor or Iron Butterfly actually increase risk and utilize additional trading funds?

Both an Iron Condor and Iron Butterfly involve simultaneously opening a Credit Call Spread and a Credit Put spread. The margin requirement of both strategies is the width of either the Call or Put Spread (the wider spread if they are not equal). Therefore, to open an Iron Condor or Iron Butterfly an account must have sufficient trading funds to cover the margin requirement, less the net credit received from selling to open the position.

For example, if an Iron Condor with equal $1 wide spreads is sold to open at $0.45 ($45 credit) then the margin requirement is $100 and the available funds required (or the theoretical max loss) is $55 ($100-$45).

But, for example, if only one side (the call or put spread) of the Iron Condor is closed for $0.05 ($5 debit) the margin requirement remains at $100 (the width of the remaining spread). However, the remaining credit is now only $40 ($45-$5) and therefore the available funds required (or the theoretical max loss) is now $60 ($100-$40).

So, while splitting and legging out of the spreads of an Iron Condor or Iron Butterfly can certainly provide benefits such as increasing potential profits prior to expiration, these opportunities should be carefully considered along with the potential risks highlighted above.

PreviousLiquidity & ExecutionNextMargin Requirements, Available Funds & Account Value

Last updated 2 years ago