iron condor

An advanced options strategy that involves purchasing and holding four different options that all have different strike prices. The iron condor is constructed by holding a long and short position in two different strangle strategies. A strangle is created by purchasing or selling one call option and one put option with different strike prices, but with the same expiration date. The potential for profit or loss is limited in this strategy because an offsetting strangle is positioned around the two options that make up the strangle at the middle strike prices.

This strategy is mainly used when a trader has a neutral outlook on the movement of the underlying security from which the options are derived. An iron condor is very similar in structure to an iron butterfly, but the two options located in the center of the pattern do not have the same strike prices. Having a strangle at the two middle strike prices widens the area for profit, but also lowers the profit potential.