Iron condor definition and payoff

Summary

An iron condor combines a call spread and a put spread in the same expiry to express a neutral range-bound view with defined maximum loss. It suits this framework only when the chain is liquid and directional conviction is low.

Definition

An iron condor is a defined-risk options structure made by combining a short call spread and a short put spread in the same expiry. Its best outcome usually occurs when the underlying stays between the short strikes, so the article uses it for a neutral range-bound thesis rather than for a bullish or bearish view. Maximum loss is capped by the spread width and net credit, which makes it fit accounts that need a hard loss limit at entry. Even so, the structure adds more legs, more execution sensitivity, and more management complexity than a simple vertical spread. Because the short options are on generally American-style U.S. equity contracts, early assignment can still happen on a short leg before expiry.

Sources

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