Iron Condor

Involves simultaneously buying a put option and selling a call option at one strike price and selling a put option and buying a call option at a different strike price to profit from a narrow trading range in the underlying security.

Alias

Short Iron Condor

Description

An iron condor is an options trading strategy that involves simultaneously buying a put option and selling a call option at one strike price and selling a put option and buying a call option at a different strike price. All of the options have the same expiration date and are typically used in a neutral market outlook. The strategy is designed to profit from a narrow trading range in the underlying security. It is called a “condor” because the profit potential and risk profile of the position resemble the shape of a condor’s wings.
The trader profits from the strategy if the underlying security remains within a certain price range at expiration. If the price of the security is above the strike price of the call option or below the strike price of the put option, the trader will experience a loss. However, if the price of the security is within the range defined by the strike prices of the options, the trader will earn a profit. The maximum profit is limited and is equal to the difference between the strike prices of the call and put options minus the net debit paid to enter the position. The maximum loss is limited and is equal to the net debit paid to enter the position.

Breakeven

Leg 2 minus net credit received
Leg 3 plus the net credit received

Sweet Spot

The stock price is in between Leg 2 and Leg 3.

Max Profit

Limited to the net credit received

Max Loss

Limited to Leg 2 minus Leg 1, minus the net credit received.