← Strategy LabLesson 29 · 4:39
Iron condor
Summary
The iron condor is a bet that XYZ sits still: sell a put below the price and a call above it, and buy two cheaper options further out as wings. In the example you collect $195, which is the most you can make anywhere between $95 and $105; past $90 or $110 you lose $305, more than you collected. You break even at $93.05 and $106.95.
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.
- net credit
- When a pair of trades brings cash in overall.
- floor
- The worst result a protected position can reach, set by the put's strike.
- short strangle
- Selling a call and a put at different strikes further out, collecting less than a straddle with the same open sides.
- assignment
- When a buyer exercises and you, as the seller of that option, must deliver.
Check yourself
Answer each question to see why the right answer is right.
1. Which legs make up the lesson's iron condor?
2. How much comes in, net, when you open the trade?
3. XYZ ends at $110 on the last day. What is your result?
4. Why can the loss never go deeper than $305, however far XYZ runs?
5. XYZ sits at $105 and the days pass with nothing else changing. What happens to your result if you closed today?
Finished the video and the quiz? .