The iron condor spread is an options trading strategy that is somewhat similar to the iron butterfly spread. It's often preferred to the iron butterfly spread by traders, because there's a greater chance of making the maximum profit. Whereas the iron butterfly spread requires the underlying security to be at an exact price for the maximum return, the iron condor spread will return maximum profit providing the underlying security is within a specified range. There is a trade-off though, because the maximum profit is lower. For full details of this strategy, please see below. The iron condor spread is a neutral strategy, so it's used when you are expecting little price movement in a security. As we have mentioned above, it can return the maximum profit even if the underlying security moves a little in either direction, so it's a good choice if you think there may be a small amount of volatility. It's a complicated strategy, so it shouldn't really be used by traders without a decent level of experience. Trading like the iron butterfly spread, the iron condor spread has four legs meaning you need to place four orders with your broker. A combination of puts and calls are involved, and you options to both buy and write options. The four trades that are required are as follows. The amount of options bought options sold in each of the legs should be the same, as should the expiration dates used. The two short legs should use strikes that are equidistant from the current trading price of the underlying security, as should the two long legs. It's up to you, though, to decide exactly which strikes you use. The further away from the current price the strikes of the long legs, the lower the possibility of the spread returning a options, but the potential loss will be higher. The bigger the difference between the strikes of the short legs, the wider the range for maximum profit will iron, but the potential profit will be lower. Here is an example of the iron condor spread to give you an idea of how it can be used. We should point out that we have used simplified, hypothetical options prices in trading example rather than real market data. Also, we have ignored any trading that would be involved. The iron condor will generate the maximum possible return when the underlying security trades at a price within the strike of the two short legs i. This will result in all four legs expiring out of the money, and you will keep the amount of the net credit as your profit. The spread will have two break-even points either side of this range, and you will still make a profit albeit a lower one iron the price of the underlying condor is between those two points. If it goes outside this range, you will make a loss. We have summarized the various formulas that can be applied to the iron condor spread below, as well as condor the results of some hypothetical scenarios. The iron condor spread is a good alternative to the iron butterfly spread if you are trying to profit from a neutral outlook. Although the maximum potential profit is lower, the likelihood of making that profit is higher, because the iron condor generates maximum returns when the underlying security is trading within a price range rather than at an exact price. The downsides are similar to those of the iron butterfly; it's a complicated strategy and four legs means higher commission charges. Condor Glossary of Condor History of Options Trading Introduction to Options Trading Definition of a Contract What is Options Trading? Iron Condor Spread The iron condor spread is an options trading strategy that is somewhat similar to the iron butterfly spread. Section Contents Quick Links. When to Use an Iron Condor Spread The iron condor spread is a neutral strategy, so it's used when you are expecting little price movement in a security. How to Use an Iron Condor Spread Just like trading iron butterfly spread, the iron condor spread has four legs meaning you need to place four orders with your broker. Buy out the money calls Sell out of the money calls lower strike than above Buy out of the money puts Sell out of the money puts higher strike than above The amount of options bought or sold in each of the legs should be the same, as should the expiration dates used. This is Leg A. This is Leg B. This is Leg C. This is Leg D. The ones written in Legs B and D would remain at the money and also expire worthless. Your profit would be the net credit. The ones in Legs C and D would be out of the money and worthless. The ones bought in Leg C would iron at the money and worthless. Summary The iron condor spread options a good alternative to the iron butterfly spread if you are trying to profit from a neutral outlook. Read Review Visit Broker.
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Hatch, Charles E., Jr. and Pitkin, Thomas M., Yorktown: Climax of the Revolution, National Park Service, Washington DC, 1941.