Iron Condor
A four-leg options strategy that sells an OTM call spread and an OTM put spread simultaneously, profiting when the underlying stays range-bound.
Formula
Max Profit = Net Premium | Max Loss = Spread Width − Net Premium
An iron condor combines a short OTM call spread (bear call spread) and a short OTM put spread (bull put spread) at the same expiration. This creates a defined-risk, defined-reward position: maximum profit is the net premium collected; maximum loss is the width of one spread minus the premium.
The position profits when the underlying stays within the short strikes — the "body" of the condor. It is the classic strategy for selling volatility in a range-bound market.
Iron condors are favoured by systematic premium sellers because the defined risk limits catastrophic losses, unlike a naked strangle.
Example
With SPY at $525, you sell the $540/$545 call spread for $0.80 and the $510/$505 put spread for $0.70, collecting $1.50 ($150/contract). Max loss = $5.00 − $1.50 = $3.50. The underlying must stay between $510–$540 to keep full profit.
Related Terms
Butterfly Spread
A 3-leg defined-risk options strategy: buy 1 lower-strike, sell 2 middle-strike, buy 1 higher-strike — all at the same expiry. Max profit if price pins the middle strike.
IntermediateDelta
The rate of change in an option's price for a $1 move in the underlying. Ranges from 0 to 1 for calls and −1 to 0 for puts.
IntermediateImplied Volatility
The market's forward-looking expectation of volatility, derived by solving the options pricing model for the volatility that matches the observed premium.
AdvancedStrangle
An options strategy buying (or selling) an OTM call and OTM put at different strikes but the same expiration, cheaper than a straddle but requiring a larger move to profit.
AdvancedTheta
The daily rate of time value erosion in an option's price, assuming all else stays constant. Usually negative for long options.
IntermediateVertical Spread
An options strategy involving the simultaneous buy and sell of two options of the same type and expiration but at different strikes, limiting both risk and reward.
Intermediate