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Options strategy Iron Condor


Iron Condor- a spread with limited risk and limited profit, using four different striking prices but the same expiration date. The position is a combination of puts and calls all of which are Out of the money. The maximum profit is realized between the two inner strikes, and the maximum loss is realized outside of the higher and lower strikes.


When selling an Iron Condor (or Iron Butterfly), the trader is neutral.

Because all the options are Out of the money, the trader receives credit for it.

The inner options are being sold, those options worth more than the outer options that being bought, inner options are closer to the stock price, which means their strike is closer to At the money strike (to more expensive options).

If the stock price closes between the two inner strikes at expiration, all the options will expire worthless. The trader will receive all the credit.


Chart example:


Inputs:

Credit recived-> 13.45, Stock price-> 484,

Top Upper strike (Bought) ->560 Call

Top Lower strike (Sold) ->530 Call

Bottom Upper strike (Sold) ->450 Put

Bottom Lower strike (Bought) ->420 Put

Days to expire -> 46

Implied Volatility -> 46.7% (0.467)

Date - > 02/11/2020


Maximum Profit = The credit recived = $1345

Maximum Loss = Difference in Upper (or Lower) Strike – the credit

= 560 - 530 – 13.45 = 16.55

= 450 - 420 – 13.45 =16.55

Maximum Loss = $1655

If the Iron Condor is not balanced (the differences between strikes are not equal like in this example), the calculations are different.


Like selling Straddle / Strangle, the same conclusions about increase or decrease in Implied volatility are true here.


In these conditions, it will take 10 days for the position to enter the profit zone and 35 days to receive 50% of the credit.


This post relates to previous posts.

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