Iron condor

An iron condor is an options strategy that combines a call spread and a put spread on the same underlying stock and the same expiration date, built to profit when the stock stays within a defined range through expiration. It uses four different strike prices in total, two on the call side and two on the put side, all set up so the position collects a net premium when it is opened.

The trade is built by selling a put at a strike below the current stock price and buying another put further below it for protection, while separately selling a call at a strike above the current stock price and buying another call further above it for protection. Both the put spread and the call spread are sold at strikes the trader believes the stock is unlikely to reach, and the premium collected from selling both spreads is the maximum possible profit, realized in full if the stock finishes between the two strikes that were sold. The maximum loss is capped at the width of whichever spread gets breached, minus the premium collected up front.

Iron condors are popular with traders who expect a stock or index to stay range bound and who want to profit from time decay and elevated implied volatility without taking a directional view. The position benefits from the stock doing nothing in particular, which makes it appealing during periods of expected calm, but it carries defined risk on both sides if the stock makes a larger move than expected in either direction before expiration.