| The Iron
Condor Spread strategy is a neutral strategy similar to the Iron
Butterfly. In the Iron Condor, an investor will combine a
Bear-Call Credit Spread and a Bull-Put Credit Spread on the same
underlying security. By doing this, an investor will potentially
be able to double the credit obtained over a single spread
position. Since 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. |
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Enter a
Bear-Call Credit Spread (Sell a Call at or out-of-the-money. Buy a
Call one or more strikes above sold Call in the same target
month). |
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Enter a
Bull-Put Credit Spread in the same month, on the same stock (Sell
a Put at or out-of-the-money. Buy a Put one or more strikes lower
than Sold Put in the same target month). |
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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. |
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The
upper break even is the sold call strike price plus the total net
credit. |
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The lower
break even is the sold put strike price minus the total net
credit. |
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A profit
is realized at any price above the lower break even or below the
upper break even. |
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The max.
risk is the difference in strike prices on either spread minus the
net credit. |
