Iron condor profits when stock stays within a specific range
Image: Szaaman, Public domain, via Wikimedia Commons
Iron condor
Iron condor profits when stock stays within a specific range
The iron condor is a combination of a bull put spread and a bear call spread, both credit spreads. It profits from the stock price staying within a certain range, as it involves selling options with strikes closer to the current price and buying options with strikes farther away.
Example
If the stock price is between $50 and $60, and the iron condor is set with strikes at $45, $50, $55, and $60, the trader profits if the stock stays within this range.
Remember this
Understanding this range is crucial for traders to manage risk and set appropriate stop-loss orders.
Text adapted from Wikipedia, licensed under CC BY-SA 4.0.
Related concepts
Straddle
Straddle strategy profits from large price movements in either direction
Graham number
Why pay too much for a stock?
Capital asset pricing model
Treynor-Black model combines active stock picking with a passive market portfolio
Anchoring effect
Anchoring bias skews sell decisions based on initial purchase price
Stock split
Stock split doubles shares, halves price
Market capitalization
Market capitalization = share price × shares outstanding
Educational content, not financial advice.
Swipe through 100 ML concepts daily
Open Pocket Polymath