Iron Condor

Sell an OTM call spread and an OTM put spread to collect premium while the stock stays range-bound.

An iron condor combines a bear call spread and a bull put spread on the same underlying and expiry. It's the signature range-bound income trade: you profit as long as the stock stays inside your two short strikes.

Market outlook

Neutral — you expect the stock to chop sideways and/or implied volatility to fall.

Construction (four legs)

• Sell put at $K_2$, buy put at $K_1$ ($K_1 < K_2$) — the put spread.
• Sell call at $K_3$, buy call at $K_4$ ($K_3 < K_4$) — the call spread.
• Order: $K_1 < K_2 < K_3 < K_4$. Net credit $C$.

Risk / reward

• Max profit: $C$, kept if the stock closes between $K_2$ and $K_3$.
• Max loss (per side, the wings are usually equal width $W$): $W - C$
• Breakevens: $K_2 - C \quad \text{and} \quad K_3 + C$

When to use it

• High IV (you're selling rich premium) with no strong directional view.
• Around a defined range bounded by support/resistance.

Risks & management

• A sharp trend to either wing produces the max loss — only one side can lose.
• Common practice: sell ~30–45 DTE with short strikes near 0.16 delta, take ~50% of max profit, and roll the untested side or close if a short strike is breached.