Iron condor
From Wikipedia, the free encyclopedia
Iron condor is the name of an advanced, neutral-outlook, options trading strategy that involves buying and holding four different options with different strike prices. It is a limited risk, limited profit trading strategy that is structured for a larger probability of earning a smaller profit when the underlying stock is perceived to have a low volatility.
To set up an iron condor, the options trader sells a lower strike out-of-the-money put, buys an even lower striking out-of-the-money put, sells a higher strike out-of-the-money call and buys another even higher striking out-of-the-money call. The iron condor is a credit spread as a net credit is received when putting on the trade.
Iron condors are very similar in structure to iron butterflies, but the two options located in the center of the pattern do not have identical strikes. Having a strangle at the two middle strike prices widens the area for profit, but at the same time lowers the maximum potential profit.
|
||||||||||||||||||||||||||||||||||||
