Strategy guide
Iron Condors Explained
An iron condor is a four-leg strategy that seeks to profit when the underlying stays inside a defined range. It is designed around a neutral outlook and a capped-risk profile.
How the trade is built
An iron condor typically combines a short call spread and a short put spread. The result is a defined-risk trade with a maximum profit zone near the short strikes.
When the stock stays between the inner strikes, the trade can produce its best result.
Why traders like it
- defined risk
- neutral market outlook
- time decay can help the position
What can go wrong
If the underlying moves sharply beyond the breakeven range, losses can accelerate. Because the strategy has multiple legs, it is important to analyze the full payoff profile rather than any one component in isolation.
How to analyze it with OTL2
Model the full multi-leg position in OTL2 and review how the curve changes at different expiration dates. This helps you understand the trade's expected range and risk before moving into real capital.