The Iron Condor

The iron condorA range-bound options strategy with defined risk. is the defined-risk answer to the dangerous short strangleA cheaper volatility bet using out-of-the-money options., and the income trader’s workhorse. It’s a four-leg strategy: a short strangleA cheaper volatility bet using out-of-the-money options. (sell OTMWhere an option’s strike sits relative to the current price. callThe right, not the obligation, to buy or sell at a set price. + OTMWhere an option’s strike sits relative to the current price. putThe right, not the obligation, to buy or sell at a set price.) plus protective wings (buy a further-OTMAn option with no intrinsic value yet. callThe right to buy the underlying at a set price — a bullish bet. and putThe right to sell the underlying at a set price — a bearish bet.). You still profit from a range — but now your disaster is capped.

• Setup — sell an OTMWhere an option’s strike sits relative to the current price. callThe right, not the obligation, to buy or sell at a set price. + OTMWhere an option’s strike sits relative to the current price. putThe right, not the obligation, to buy or sell at a set price. (the strangleA cheaper volatility bet using out-of-the-money options.), buy a further-OTMAn option with no intrinsic value yet. callThe right to buy the underlying at a set price — a bullish bet. + putThe right to sell the underlying at a set price — a bearish bet. (the wings). Four legs, net credit received.
• Max profit — the net premium, kept if price stays between the short strikes at expiry.
• Max loss — (wing width − net premium), defined and known up front; far smaller than a naked strangleA cheaper volatility bet using out-of-the-money options.’s.
• Best when — you expect range-boundA pause where price trades sideways in a range., calm price action, and IVThe market’s forecast of future movement, baked into option prices. is high (richer premium to sell).