Iron Condor
Quick Definition
A popular neutral options strategy that sells an OTM put spread and OTM call spread simultaneously, profiting when the underlying stays within a defined range.
What Is Iron Condor?
An iron condor consists of four options: selling an out-of-the-money put, buying a further out-of-the-money put, selling an out-of-the-money call, and buying a further out-of-the-money call, all with the same expiration. This creates a credit received upfront with defined maximum risk on both sides. The strategy profits when the underlying stays between the two short strikes at expiration. Maximum profit equals the total credit received; maximum loss is the width of either spread minus the credit. Iron condors are one of the most popular premium-selling strategies because they have a high probability of profit (typically 60-80%) and clearly defined risk. They work best in low-to-moderate volatility environments. Many systematic options income strategies are built around iron condors.
Iron Condor Example
- 1On SPY at $450: sell $440 put, buy $435 put, sell $460 call, buy $465 call for $1.80 credit. Max profit $1.80 if SPY stays between $440-$460; max loss $3.20
- 2A trader manages an iron condor portfolio, selling 45-DTE spreads at 16-delta each month and targeting 50% of max profit before closing
Related Terms
Iron Butterfly
A neutral options strategy that sells an ATM straddle and buys OTM wings for protection, creating a defined-risk position that profits from low volatility.
Condor Spread
A neutral options strategy using four different strike prices to profit when the underlying stays within a defined range, similar to a wider butterfly.
Strangle
An options strategy involving the purchase (or sale) of an OTM call and OTM put at different strikes with the same expiration, a wider alternative to a straddle.
Vertical Spread
An options strategy involving buying and selling options of the same type and expiration but at different strike prices.
Implied Volatility (IV)
The market's forecast of the likely magnitude of future price movements, derived from current option prices using pricing models.
Call Option
A contract giving the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time period.
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