Iron Condor

Sell an OTM put spread and an OTM call spread simultaneously — profits if the underlying stays in a wide range.

Iron condor: sell put(K2) + buy put(K1) + sell call(K3) + buy call(K4), where K1 < K2 < S < K3 < K4. Net credit = P(K2) − P(K1) + C(K3) − C(K4). Maximum profit = net credit (if stock expires between K2 and K3). Maximum loss = (K2 − K1) − net credit (on put side) or (K4 − K3) − net credit (on call side). Breakevens: K2 − net credit and K3 + net credit. The iron condor is a short volatility strategy — it profits from time decay and range-bound markets.

Related Terms

Long Butterfly Spread

Buy a low and high strike call, sell two middle-strike calls — profits if price stays near the middle strike.

Straddle

Buying a call and a put at the same strike — profits from a large move in either direction.

Implied Volatility (IV)

The volatility that, when input into the BSM model, makes the model price equal to the market price of an option.