Iron Condor
A four-legged options strategy that combines a bull put spread and a bear call spread to profit when the underlying stays within a defined range.
What is Iron Condor?
An iron condor is a neutral, limited-risk options strategy constructed by simultaneously selling an out-of-the-money put, buying a further out-of-the-money put (a bull put credit spread), selling an out-of-the-money call, and buying a further out-of-the-money call (a bear call credit spread). The combined net premium received is the maximum profit, realized if the underlying expires between the two short strikes. The maximum loss on either side equals the width of the respective spread minus the premium received. Iron condors are popular income strategies in range-bound or low-volatility markets and are a staple of systematic options selling strategies.
Example
A stock trades at $100. A trader sells the $95 put and $105 call for $2.00 each, buys the $90 put and $110 call for $0.50 each, collecting a net credit of $3.00. Maximum profit is $300 per contract if the stock stays between $95 and $105 at expiration. Maximum loss is $5 (spread width) − $3 (premium) = $200 per contract if the stock breaks below $90 or above $110.