An Iron Condor is a market-neutral strategy constructed from a short call spread and a short put spread.
It profits when the underlying stays within a defined range.
How It Works
Sell 1 out-of-the-money call (short call) and buy 1 higher strike call (call hedge) — this is the short call spread.
Sell 1 out-of-the-money put (short put) and buy 1 lower strike put (put hedge) — this is the short put spread.
All legs share the same expiration.
Profit and Loss Profile
Maximum Profit: The net premium received when both short spreads expire worthless (price stays between the short strikes).
Maximum Loss: Limited to the width of the wider spread minus net premium received.
Breakeven: Lower and upper breakeven points at short strikes adjusted by net premium.
Why Traders Use It
To capture premium in low-volatility or range-bound markets.
For high-probability, limited-risk income strategies.
Because it offers defined risk and predictable outcomes when implied volatility is stable.