An Iron Condor is an options strategy used when the trader has a neutral outlook on the market. It involves selling both a call option and a put option with a higher strike price and buying both a call option and a put option with a lower strike price.
The goal of this strategy is to profit from the premiums received from selling the options while limiting potential losses with the options purchased. The maximum profit is the net premium received, while the maximum loss is limited to the difference between the strike prices of the call options or the put options minus the net premium received.
For example, an options trader may sell a call option with a strike price of $50, buy a call option with a strike price of $55, sell a put option with a strike price of $45, and buy a put option with a strike price of $40, all with the same expiration date. If the underlying asset’s price remains between $45 and $50 at expiration, the trader will make a profit.