The Iron Condor: A Lucrative Options Trading Strategy for Low-Volatility Markets

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An “iron condor” is a popular options trading strategy that is used to generate income in a market with low volatility. It is a combination of two vertical spreads — a bear call spread and a bull put spread — executed on the same underlying asset. The strategy gets its name from the profit/loss diagram that resembles the wingspan of a condor bird.

To better understand how an iron condor works, let’s break down its components:

1. Bear Call Spread: This involves selling a call option with a lower strike price and simultaneously buying a call option with a higher strike price. The goal is to profit from a neutral or bearish move in the underlying asset’s price. The maximum profit is achieved when the price remains below the lower strike price at expiration.
2. Bull Put Spread: This strategy entails selling a put option with a higher strike price and buying a put option with a lower strike price. It aims to profit from a neutral or bullish move in the underlying asset’s price. The maximum profit is achieved when the price remains above the higher strike price at expiration.

By combining these two spreads, traders create a range or “wing” from which they can profit. The strike prices of the options involved determine the range. The closer the…