Iron condor

An iron condor is built from four options with the same expiration on the same underlying: sell an out-of-the-money put, buy a further out-of-the-money put, sell an out-of-the-money call, and buy a further out-of-the-money call. The two sold options sit closest to the current price and generate the credit; the two purchased options sit further out and cap the loss on each side. The position is opened for a net credit.

The strategy is neutral — it wins when the underlying does very little. Maximum profit is the net credit received, earned when the stock finishes between the two short strikes and all four options expire worthless. Maximum loss is the width of one spread minus the net credit received, since only one of the two spreads can finish in the money — the two spreads are normally built the same width, and if they are not, use the wider one. For example, selling a 45/40 put spread and a 55/60 call spread for a $1.50 net credit gives a maximum gain of $150 per condor and a maximum loss of $350.

An iron condor is essentially a short strangle with protective wings attached. Those long options give up some premium but convert an unlimited-risk position into a defined-risk one, which is why the strategy can be used in accounts that would not be approved for naked option writing. Time decay works in the position's favor, and a drop in implied volatility helps as well.

Advanced multi-leg strategies like this belong to the senior registered options principal material. The Series 9 covers iron condors alongside butterflies and other combination spreads, testing whether you can identify the market outlook, compute maximum gain and loss, and locate the breakeven points on either side of the profit range.