Option Trading Lesson 2.4

What Is an Iron Condor?

An iron condor is an options strategy consisting of two puts (one long and one short) and two calls (one long and one short), and four strike prices, all with the same expiration date. 

The iron condor strategy has limited upside and downside risk because the high and low strike options, the wings, protect against significant moves in either direction. Because of this limited risk, its profit potential is also limited.

LC 110, SC 105, SP 95, LP 90

The options that are further OTM, called the wings, are both long positions. Because both of these options are further OTM, their premiums are lower than the two written options, so there is a net credit to the account when placing the trade. 

龍門 (95-105)外再每一邊加一個網 (LC 110, LP 90)

The options that are further OTM, called the wings, are both long positions. Because both of these options are further OTM, their premiums are lower than the two written options, so there is a net credit to the account when placing the trade. 

Iron Condor Profits and Losses

The maximum profit for an iron condor is the amount of premium, or credit, received for creating the four-leg options position.

The maximum loss is also capped. The maximum loss is the difference between the long call and short call strikes, or the long put and short put strikes. Reduce the loss by the net credits received, but then add commissions to get the total loss for the trade.