The Traderszone Network

1 June, 2009 by James McBride

The Iron Condor: Making Money In A Sideways Market?

The PowerOptions blog has an interesting recent post on the Iron Condor Spread strategy. The Iron Condor is a neutral strategy where a trader combines a Bear-Call Credit Spread and a Bull-Put Credit Spread on the same underlying security. This type of trade is often used when an investor thinks the underlying may trend neutral over the life of the trade. Also, there is the potential to double the credit obtained over a single spread position.

There are two spreads involved in the strategy (four options). There is an upper break even and a lower break even. A profit is made if the stock remains above the lower break even point or below the upper break even point as evidenced by the chart.

Generic Profit/loss graph for a Condor
Image via Wikipedia

An investor will receive a net credit from both positions. The total net credit is the max. profit. The max. profit is earned if the stock price remains above the sold put strike and below the sold call strike. The max. risk is the difference in strike prices on either spread minus the net credit.

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