Credit spreads
Iron condor
A short strangle with a bought option beyond each sold one.
Index stays in a rangeOpens for a creditTraded options beforeLoss capped
How it works
The two bought options are insurance: they cost part of the premium but they cap what a large move can take from you. This is the usual answer to "I want to sell premium but I cannot carry unbounded risk."
What it costs you when you are wrong
Loss is capped, but the cap is typically several times the credit received — a handful of bad expiries can undo many good ones. The wings only help beyond their own strikes; between the sold and bought strikes you lose at the full rate.
The position
- 1Sell the call 3 strikes out of the money
- 2Sell the put 3 strikes out of the money
- 3Buy the call 6 strikes out of the money
- 4Buy the put 6 strikes out of the money
- Enter
- 4 trading days before expiry
- Exit
- hold to expiry
- Legs
- 4
Test it yourself
This runs against real historical market data. Nothing is uploaded, nothing is stored, and the result is not a prediction — it is what this rule would have done, on that index, in that year, with the costs shown.