A short iron condor option strategy is created by selling an out-of-the-money put spread and an out-of-the-money call spread together. You sell a put at a higher strike, buy a put at a lower strike, sell a call at a lower strike, and buy a call at a higher strike. You collect a net credit when establishing the trade. Traders use this strategy to generate income when they expect a stock to trade within a specific range with minimal price action.
Your maximum profit is equal to the net credit received upfront, realized if the stock remains strictly between the two inner strike prices until expiration. The maximum loss is capped at the difference between the strike prices of either spread minus the credit received, occurring if the stock moves heavily past either outer strike.
- Sell $90 Put for $1.50
- Buy $85 Put for $0.50
- Sell $110 Call for $1.50
- Buy $115 Call for $0.50
- Stock between $90 and $110: +$200 Max Profit
- Stock at $88 or $112: $0 Breakeven
- Stock ≤ $85 or ≥ $115: -$300 Max Loss