Reverse Iron Condor

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

Alias

Inverse Iron Condor

Descriptions

A reverse iron condor is a complex options trading strategy that involves simultaneously selling a put option and buying a call option at one strike price and buying a put option and selling 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 wider trading range in the underlying security. It is called a “reverse iron condor” because it is the opposite of an iron condor and involves selling options rather than buying them.
The trader profits from the strategy if the underlying security remains outside of a certain price range at expiration. If the price of the security is within the range defined by the strike prices of the options, the trader will experience a loss. However, if the price of the security is outside of this range, the trader will earn a profit. The maximum profit is limited and is equal to the difference between the prices at which the options were sold and bought. The maximum loss is limited and is equal to the difference between the strike prices of the inner two options minus the net credit received to enter the position.

Breakeven

Leg 2 plus net debit received to enter the option
Leg 3 plus the net debit received to enter the option

Sweet Spot

The stock price is less than Leg 1 or more than Leg 4

Max Profit

Limited and is equal to the difference between the strike prices of the middle two options minus the net debit paid.

Max Loss

Limited to the net debit paid to get into this Condor Strategy