Just like a traditional iron condor, a chicken iron condor** **strategy is a non-directional options strategy that profits when the option on the underlying stock of your choice expires within your chosen range at expiration.

*As the wonderful research team over at Tastytrade reported, “We know through extensive research that roughly 80% of the expected move around earnings is larger than the actual movement of the stock.”*

Knowing this, we use a chicken iron condor, especially when we are using stocks with higher implied volatility.

**Options Trading Strategy: Our Approach**

In our case, since we are trading earnings, we want to choose short strikes that are inside the expected move and long strikes that are outside the expected move. With one caveat, we must receive premium that is at least 40% to 50% of the width of the strikes. For example, if we are trading a three-point wide iron condor, we need to choose strikes that allow us to bring in roughly $1.50 in premium.

Again, the basic premise of the chicken iron condor strategy is easy. You choose the range of the trade. Decreasing the range will increase your potential profits, but will decrease your likelihood of success.

The first requirement when trading iron condors is to make sure you are using a highly liquid security, like one of the FANG stocks. I prefer to use chicken iron condors when we are using a highly-liquid, higher-priced, higher-beta stock like what we typically see in the Nasdaq 100.

For instance, take the heavily traded **PayPal (PYPL)**. The company reports earnings in two days.

In this example from mid-October, PayPal has an implied volatility if 32.3%. More importantly, the IV Rank is 81.8%, an extremely high reading. An IV Rank of 81.8% means that the current level of implied volatility in PayPal is greater than 81.8% of all IV reading over the past year.

The stock is trading for $67.40 at this point.

An above-average to extremely high IV rank means we can sell options for above fair-to-highly-inflated prices. And as anyone who sells anything for a living, your preference is to always sell your product(s) for inflated prices. Options are no different.

So, assuming PYPL’s implied volatility is at least slightly above average, we can proceed to the next step.

Our next step is to find out what the expected move is to our chosen expiration cycle for the trade. In most cases, we use the expiration cycle that has an expiration closest to the earnings date. Since PYPL has earnings in two days, we will, in most cases, choose the expiration cycle with two days left.

As you can see in the highlighted area below, the expected move is roughly $6.50, from $64 to $70.50.

Now we can choose our strikes.

Remember, we want to collect premium that is worth roughly one-half or 40% to 50% the width of our chosen strikes.

First, I look at the call side of the iron condor, also known as a bear call spread. I want to find the short strike with around an 80% probability of success.

The October 69.5 calls fit the bill, with a delta of .29 for a probability of success around 64% (64.2% according to the table above).

Next, I look at the put side with the same goal in mind: a probability of success of around 60% or higher.

The October 65 puts work with a probability of success around 60% (60.7% according to the options chain).

So, right now I have my starting range of $69.50 and $65 established. Obviously, I can alter it as wish, but this is the typical starting point for my iron condor trades.

**What’s the Return?**

By selling the 69.5/71.5 bear call spread and the 65/63 bull put spread simultaneously – thereby forming a chicken iron condor – we can make roughly $0.80, or 66.6%, over the next two days if PYPL trades between our chosen strikes immediately following earnings. Because we are using $2 wide strikes, our risk is $1.20 per iron condor sold (width of spread strikes minus amount of premium received or $2 – $0.80).

With PYPL trading at $67.40, the underlying price in PYPL would have to breach the breakeven levels of $70.30 or $64.20 by October expiration in two days before the trade begins to take a loss.

It would take a 4.3% move to the upside or a 4.7% move to the downside over roughly two days before the position is in jeopardy of taking a loss.

Best of all, the probability of success on the trade is over 60% on both the upside and downside.

I like those odds.

**Risk Management**

Because we are making short-term trades, based purely on binary events, risk management as seen through strict position-size is essential for long-term success. In fact, since the trades have little to no duration, there is rarely time to adjust a trade, therefore again, position-size is key.

Remember, we are trading math here in this options trading strategy. It’s all about allowing the probabilities to work themselves out amidst the iron condor strategy, knowing that if the statistics play out, our wins should far outweigh our losses.

*Confirm your spot in Andy’s next webinar by clicking here. In this exclusive strategy session, Andy reveals the top 5 EARNINGS SEASON trading strategies and how to trade options like a pro.*

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