Iron Condor
An iron condor is an options strategy that involves selling both a put spread and a call spread on the same underlying asset with the same expiration date. It profits when the price stays within a defined range, making it ideal for low-volatility environments.
Understanding the Concept
• Combines a bull put spread and bear call spread into one position • Maximum profit occurs when price stays between the two short strikes at expiration • Limited risk and limited reward strategy with defined max loss • Requires four separate options contracts to execute
Real-World Example
A trader sells an iron condor on SPY trading at $450. They sell a $440 put, buy a $435 put, sell a $460 call, and buy a $465 call. If SPY stays between $440-$460 at expiration, they keep the full premium collected (say $2.50). Max loss is $2.50 (spread width minus premium) if price moves beyond either wing.
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