PREMIUMLong Iron Condor
Overview:
Condor spreads are a popular strategy due to the limited risk. The strategy combines a bear put spread and bull call spread with the same expiration. The strategy is employed by selling a deep out-of-the-money put option, selling a deep out-of-the-money call option, buying an out-of-the-money put option and buying an out-of-the-money call option. All the options expire in the same month.
Main Uses:
- Investors who think the underlying stock will trade outside of a range between now and expiration will invest in this strategy. The out-of-the-money call option and the out-of-the-money put option generate the returns for this strategy.
- Investors use this strategy to bet that implied volatility will go higher.
Profit / Loss Long Iron Condor:
The below graph is a profit / loss graph of a long iron condor using the OptionsHouse P&L calculator. The current stock price is at $113.78. A deep out-the-money put option was sold with a strike price of $105. An out-of-the-money put option was purchased with a strike price of $109. A deep-out-of-the-money call option was sold with a strike price of $123. An out-of-the-money call option was purchased with a strike price of $119. The two break-even points are $108.86 and $119.14. As long as the stock trades outside of the two strike prices the investor will make money.
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