The Iron Condor Trade

The basic setup of the iron condor is to sell one out-of-the-money call and one out-of-the-money put with strike prices that are about equally placed from the middle of the price range of the stock. To hedge these short positions, buy one call and one put that are even further out-of-the-money. All of these options have the same expiration date. Because the purchase prices of the long options are less than the sale prices of the short options, the iron condor creates a net credit.

Another interpretation of an iron condor is a combination of two vertical credit spreads. A bull put spread is established with the short put strike price near the bottom of the price range of the stock. Additionally, a bear call spread is established ...

Get Options for the Beginner and Beyond: Unlock the Opportunities and Minimize the Risks now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.