Iron Condor Options Strategy (Visuals + Trade Examples)


Maximum Profit Potential: Net Credit x 100

The maximum profit potential of one short Iron Condor is the net credit received, times 100, as standard equity options have a contract multiplier of 100 (such as options on AAPL, MSFT, SPY).

In the above example trade, the net credit is $15.00, which results in a maximum profit potential of $1,500 per Iron Condor sold:

$15.00 Net Credit x 100 = $1,500 Max Profit Potential.

The maximum profit potential is realized when the stock price is in-between the short put strike price and short call strike price at expiration. In this example, that’s anywhere between $450 and $550:

 

Maximum Loss Potential: (Width of Widest Spread – Net Credit) x 100

The maximum loss potential of selling one Iron Condor position is the strike price width of the wider vertical spread, less the net credit, times 100:

$50.00 Max Spread Width – $15.00 Net Credit x 100 = $3,500 Max Loss Potential.

Since only one of the spreads can be fully in-the-money at expiration, the width of the wider spread is the maximum value of the Iron Condor at expiration. In this example, both the call spread and put spread are $50 wide (400/450 put spread and 550/600 call spread).

If the Iron Condor is sold for $15.00, an increase to its maximum value of $50.00 would represent a loss of $3,500: ($15.00 Sale Price – $50.00 Maximum Trade Value) x 100 = -$3,500.

The maximum loss potential occurs if the stock price is entirely below the put spread OR entirely above the call spread at expiration:

 



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