Volatility and Range Strategies · Options Trading Guide
Iron condors and iron butterflies combine put and call spreads. Protective wings bound the combined expiration payoff but do not remove management risk.
Build an iron condor
Buy a 90 put, sell a 95 put, sell a 105 call and buy a 110 call, all with the same expiration. Assume a $2 total credit per share. One standard position receives $200. Between $95 and $105 at expiration, all options have no intrinsic value and the credit is the maximum gross profit. Below $90 or above $110, the maximum option loss is $300.
Check each side
The expiration breakevens are $93 and $107. Only one wing reaches its full intrinsic loss at a single settlement price, so the equal width calculation uses one $500 wing minus the $200 credit. With unequal widths, evaluate the wider side separately. Do not add both widths as though the stock could settle above the upper call and below the lower put simultaneously.
Compare an iron butterfly
An iron butterfly brings the short call and short put to the same middle strike. With a short 100 call and put, protective 95 put and 105 call, and a $3 credit, maximum gross profit is $300 at exactly $100 expiration. Maximum option loss is $200 and breakevens are $97 and $103. The larger credit is paired with a more concentrated best outcome.
Respect the complete position
A range strategy can lose when volatility rises or price approaches a short strike before expiration. Closing a winning wing changes the remaining risk and does not guarantee the other wing recovers. American style assignment can create shares on either side. Keep a record of every leg and a clear closing policy. An uncovered short straddle or strangle lacks the protective wings and can carry much larger losses. A similar sounding name does not mean the same exposure.
Try it yourself
An iron condor has a $5 put wing, a $10 call wing and a $2.50 credit. What is the maximum option loss per standard position?
Show the worked answer
The wider call wing determines the worst expiration outcome: (10 minus 2.50) × 100 = $750 before costs.
Further reading
Educational material. Examples and rates are hypothetical, not trade recommendations. Product terms, eligibility and risks vary by venue and jurisdiction.
