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Iron condor

A neutral strategy combining a bear call spread and a bull put spread, profiting if the stock stays inside a range through expiration.

Payoff of an iron condor at expiryA flat profit plateau between the two sold strikes, falling away to a capped loss on each wing.Profit / loss per share0841001169095105110buy 90 putsell 105 callsell 95 putbuy 110 callMax profit 2 — the net creditMax loss 3Max loss 3Breakeven 93Breakeven 107Underlying price at expiry
Iron condor: payoff at expiry. Four strikes: the 2 credit is kept in full while the price finishes between 95 and 105, and is lost gradually outside the 93 and 107 breakevens. The bought 90 put and 110 call stop the loss at 3 on either wing.

An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread at the same time. You collect two credits and win if the stock expires between the two short strikes. Losses are capped by the long wings.

It is a theta and short-vega trade that suits high iv-rank and range-bound expectations. The risk is a large move through either wing.

Example: stock at $100. Sell the $90 put / buy the $85 put, and sell the $110 call / buy the $115 call, collecting $1.80 total. Max profit $180 if the stock stays between $90 and $110; max loss $5 - $1.80 = $3.20 ($320).

Related: credit-spread, vertical-spread, strangle, iv-rank, theta

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