Iron Condor
In short
Four-leg options strategy that profits from low volatility and sideways price action
An iron condor sells both a call spread and a put spread. You collect premium and profit if the stock stays within a range. Think of it as betting the stock won't make a big move. Ideal when you expect a calm, boring market.
An iron condor combines a bull put spread and a bear call spread. It's short volatility — you collect premium and profit if the underlying stays between the two short strikes at expiration. Max profit = total premium collected; max loss = spread width minus premium.
Formula
Max Profit = Total Premium Collected; Max Loss = Spread Width - PremiumRelated concepts
- Straddle — You buy both a call and a put at the same strike. You profit if the stock makes a big move — up OR down. Perfect for earnings when you know something big will happen but don't know which way.
- Strangle — Like a straddle but both options are out-of-the-money. Cheaper to enter but the stock needs to make an even bigger move to profit. More speculative than a straddle but costs less upfront.
- Implied Volatility — Implied volatility is the market's guess about how much a stock will move. High IV means expensive options (the market expects big moves). Low IV means cheap options. Buy options when IV is low, sell when IV is high.
- Vega — Vega measures how much an option's price changes when market expectations of volatility change. If you expect a big announcement (earnings, FDA), buy before the event — vega will boost your option's value as uncertainty rises.