![iron condor options iron condor options](http://www.wyattresearch.com/wp-content/uploads/2017/07/2.condor.2017-07-28_1734.png)
Due to this, risk management is critical and only trades with great setups should be considered. You will notice that the risk on the trade is significantly greater than the potential reward. The maximum risk of the trade can be calculated as the difference in strike prices ($5.00) minus the premium collected ($.50) for a total risk of $4.50. The trade starts to get into trouble when the market starts moving near or beyond the short strike prices. For example,if two weeks after selling the spread it is now valued at only $.10, you could purchase it back to book a profit of $.40. If there is a significant decline in implied volatility levels before the options expire, you may also have the potential to close the spread early at a profit. If the market stays between the short strike prices of $45 and $50 at expiration, all options will expire worthless, allowing you to keep the $.50 collected. You have now, therefore, sold a call spread and a put spread, collecting a total of $.50. You also sell the $45 call and purchase the $50 call for a net credit of $.25. To construct the trade, you sell the $40 put and buy the $35 put for a net credit of $.25. To bet on your forecast, you elect to initiate an iron condor position. There are no earnings announcements or other big data points set for release, and you feel the stock is quite likely to stay in that range for an extended period of time. The stock has traded in a range from $40 on the low end to $45 on the high end. Let’s look at an example: Suppose that you have been watching stock XYZ for several weeks. The second is from a decline in implied volatility levels, in which case the options may also lose value. The iron condor is designed to potentially profit in two distinct ways: The first is from the market moving sideways in which case all options expire worthless and the trader keeps the premium collected. A simple way of looking at an iron condor is a position consisting of a short call spread and a short put spread.
![iron condor options iron condor options](http://optionsmanual.com/wp-content/uploads/2018/03/E8_Short_Condor_A.png)
The iron condor consists of four options: two calls and two puts. Description of the Strategy Iron Condor Profit & Loss Premium collection is a highly popular use for options, although such strategies can carry unlimited risks if options are net short, or “naked.” Credit spreads and similar methods can allow the trader to collect premiums while keeping risk defined.