Please view our Privacy Policy and our User Agreement.An iron condor is a low-risk, directional neutral options strategy comprising bull put spread and bear call spread.Ī bull put spread as a strategy involves buying a put option and selling a put option at different strike prices. ©1998-2023 The Options Industry Council - All Rights Reserved. ![]() Continued use constitutes acceptance of the terms and conditions stated therein. User acknowledges review of the Terms and Conditions and Privacy Policy governing this site. ©1998-2023 The Options Clearing Corporation. Franklin Street, Suite 1200, Chicago, IL 60606. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, 125 S. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Options involve risk and are not suitable for all investors. No statement in this web site is to be construed as a recommendation to purchase or sell a security, or to provide investment advice. This web site discusses exchange-traded options issued by The Options Clearing Corporation. OCC 125 South Franklin Street, Suite 1200 | Chicago, IL 60606 Should the exercise activity be other than expected, the investor could be unexpectedly long or short the stock on the Monday following expiration and hence subject to an adverse move over the weekend. If at expiration the stock is trading near either shoulder the investor would face uncertainty as to whether or not they would be assigned. Exercising an option to close out a position resulting from assignment on a short option will require borrowing or financing stock for one business day.Īnd be aware, a situation where a stock is involved in a restructuring or capitalization event, such as a merger, takeover, spin-off or special dividend, could completely upset typical expectations regarding early exercise of options on the stock. In addition, the other half of the position would remain, with the potential to go against the investor and create still further losses. It is possible, however, that the underlying stock will be outside the wingtips and the investor will want to exercise one of their shoulders, thereby locking in the maximum loss. If an early exercise occurs at either shoulder, the investor can choose whether to close out the resulting position in the market or to exercise the appropriate wingtip. The short options that form the shoulders of the condor's wings are subject to exercise at any time, while the investor decides if and when to exercise the wingtips. The passage of time, all other things equal, will have a positive effect on this strategy. Upside breakeven = lower call strike + premiums receivedĭownside breakeven = upper put strike - premiums received VolatilityĪn increase in implied volatility, all other things equal, would have a negative impact on this strategy. This strategy breaks even if at expiration the underlying stock is either above the lower call strike or below the upper put strike by the amount of the premium received to initiate the position. An investor who sells a condor receives a premium somewhere between the minimum and maximum value, and profits if the condor's value moves toward the minimum as expiration approaches. In essence, a condor at expiration has a minimum value of zero and a maximum value equal to the span of either wing. The potential profit and loss are both very limited. In that case all the options would expire worthless, and the premium received to initiate the position could be pocketed. The maximum gain would occur should the underlying stock be between the lower call strike and upper put strike at expiration. The loss would be the difference between either the call strikes or the put strikes (whichever are in-the-money), less the premium received for initiating the position. In that case either both calls or both puts would be in-the-money. ![]() The maximum loss would occur should the underlying stock be above the upper call strike or below the lower put strike at expiration. ![]() Instead of a body and two wings, the body has been split into two different strikes so that there are two shoulders in the middle and two wingtips outside the shoulders. This strategy is a variation of the short iron butterfly. The investor hopes the underlying stock will stay within a certain range by expiration. (High call strike - low call strike) OR (High put strike- low put strike) - net premium received.
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