![]() Therefore, many options sellers choose to limit their losses by purchasing offsetting options. Even worse, the seller of an option has no ability to exit a losing trade, and must wait for the counterparty to decide when to close the position. Selling options is risky due to the unlimited potential losses when trades move severely against the original position. However, the trader has a safeguard at both $55 and $35 to ensure that any losses from unexpected volatility will be capped. Ideally all the options will expire worthless with the market price never exceeding $50 or falling below $40. Although these safeguards will eat into the trader’s final profit, the premium paid will be lower than the premium received from selling the original call and put, as they are further out of the money. However, to guard against extreme payouts, the trader also purchases a call at $55 and a put at 35$. The trader has a low expectation of volatility, so it is unlikely that the security will fall below $40 or rise above $50 for the duration of the trade. This is the core of the Iron Condor position. The trader sells a put at a $40 strike price and a call at a 50$ strike price. ![]() The purchase of the further out of the money put and call options are to act as a safeguard against extreme price swings. The goal of the Iron Condor is to profit from selling both a call option and a put option of a low volatility security. Establishing an Iron CondorĪn options trader establishes an Iron Condor position by selling an out of the money put option, buying an out of the money put option with an even lower strike price, selling an out of the money call option and buying an out of the money call option with an even higher strike price. ![]() The Iron Condor is an options trading strategy that relies on low volatility to create a non-directional position with limited risk and limited profits. ![]()
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