Iron Condor Credit Spread
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The iron condor spread is actually constructed from other option trading spreads.
For instance, the iron condor is built from two seperate credit spreads – both a bull put spread – which is a credit spread constructed from puts with the traders view that the stock or underlying is nuetral to bullish – either staying in the same general area on the chart or heading up.
The other end of the iron condor spread is built from a bear call spread – which is a credit spread (also known as a vertical spread) constructed from calls with the trading viewpoint that the stock or underlying be utilized is nuetral to bearish – either staying in the same local on the price chart or is thought to be headed downwards.
Overall, the iron condor credit spread is a trade put on when the trader placing it is somewhat confident that the underlying being used will be staying in somewhat of a range and not expected to be so volatile as to penetrate either short strike of either the bear call spread on the upside or the bull put spread on the down side.
photo credit: James Byrum
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