What is an Iron Condor Strategy?

An iron condor strategy involves using four options contracts: two calls and two puts, all with the same expiration date but different strike prices. Both potential profit and maximum risk are limited.

Long Iron Condor

A long iron condor is used when you expect the price of the underlying security to move significantly in either direction. This strategy involves buying two calls and two puts at four different strike prices, all expiring on the same date. The strategy is established for a net debit, meaning the potential profit and maximum risk are both limited. Maximum profit occurs if the stock price ends up above the highest strike price or below the lowest strike price at expiration.

Short Iron Condor

A short iron condor is employed when you anticipate the price of the underlying security will remain stable or move within a narrow range. This strategy involves selling two calls and two puts at four different strike prices, all expiring on the same date. It is established for a net credit, with both potential profit and maximum risk being limited. The maximum profit is achieved if the stock price falls between the two middle strike prices at expiration.

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Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options before trading options.