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Long iron Condor Stragtegy

Strategy Type:

Long Iron Condor is a neutral strategy. It's used when an investor anticipates limited price movement in the underlying asset and aims to profit from time decay and declining option premiums.

Components: The strategy involves four components:

  • Short call Option: Simultaneously, the investor sells (writes) a call option with a higher strike price. This provides upside protection and defines the maximum loss on the call side.
  • Long Call Option: The investor buys a call option with a specific strike price.
  • Long Put Option: The investor buys a put option with a specific strike price.
  • Short Put Option: Simultaneously, the investor sells (writes) a put option with a lower strike price. This provides downside protection and defines the maximum loss on the put side.

Profit and Loss Potential:

  • Maximum Profit:The maximum profit is limited to the difference between the strike prices of the long options, minus the net debit paid when buying the options. It occurs if the underlying asset's price remains within a specific range defined by the strike prices of the options.
  • Maximum Loss: The maximum loss is limited to the net debit paid when buying the options. This loss occurs if the underlying asset's price moves significantly beyond the range defined by the strike prices.
Break-Even Point: There are typically multiple break-even points, depending on the specifics of the options used. Break-even points can be calculated based on the strike prices of the options.

Strategy Goals:

  • The primary goal of a Long Iron Condor is to profit from limited price movement in the underlying asset while controlling risk.
  • The strategy provides a defined profit range between the strike prices of the options.

Risk Management:

  • The risk is limited to the net debit paid when buying the options. This defines the maximum loss.
  • The strategy offers controlled risk with a limited profit potential.