← AdvancedLesson 18 · 5:26
Iron condor
Summary
You can build an iron condor from a bull put spread and a bear call spread, and read its credit, maximum loss and both break-evens. You can explain how time and a volatility jump move today's line, and what the wings do.
Key terms
- iron condor
- A bull put credit spread and a bear call credit spread sold together, paid for the stock staying inside a range.
- wings
- The bought options on the outside of a condor or butterfly that put a floor under the loss.
- credit spread
- A spread that pays you to open it.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. You sell the $95/$90 put pair for $98 and the $105/$110 call pair for $97. What can you make and lose on the last day?
2. Where are the condor's two break-evens?
3. Can both sides of the condor lose on the last day?
4. With the clock frozen and XYZ at $100, volatility rises to 45%. What happens?
5. Why buy the $90 put and $110 call at all?
Finished the video and the quiz? .