Iron Condor Spread
Buy 1 OTM-L Put / Sell 1 OTM Put / Sell 1 OTM Call / Buy 1 OTM-H Call
An Iron Condor Spread is a neutral strategy that may be opened by combining a Bull Put Spread with a Bear Call Spread. Iron Condor spreads have limited profit potential and limited risk of loss.
Iron Condors are opened for a net credit, which represents the maximum profit that is achieved if the underlying equity closes between the central OTM put and call strikes.
The maximum loss is equal to the difference between the further out OTM and the central OTM strike prices less the premium received.
Consider the following hypothetical example for a stock trading at $27.52.
A $26 / $27 / $28 / $29 iron condor spread can be opened for a net credit of $0.44 for the current month. A maximum profit of $44 is realized if the stock trades between $27 and $28 at option expiration. Below $26.00 or above $29 (the outer strikes), a maximum loss is realized equal to the call (or put) option strikes less premium received (i.e. $56).
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If the same central strike price is used for both the put and call legs, this strategy becomes a Iron Butterfly Spread.
