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Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Strategy
Advanced, Income
Iron Condor
A credit spread strategy that makes money if the underlying doesn't move too far.
Detail
Iron Condor is a combination of two credit spreads (call and put) that create a profit zone between two strikes. A suitable strategy for markets with low volatility, when we expect a sideways movement. Limited risk and profit.
Iron Condor consists of two credit spreads: a written and bought put (lower strike) and a written and bought call (higher strike), with the same expiration. It creates a range in which we want the underlying price to stay. The advantage is the premium received, limited risk and a clearly defined return. If the underlying price stays between the written strikes, we collect the entire premium. If the underlying breaks through the range, the loss is limited and offset by the profit of the opposite spread. The maximum loss occurs if the underlying price is below the strike long put or above the strike long call, but it is never unlimited.
Optimal conditions
Calm or slightly volatile market, stable underlying, period with higher IV when we expect it to decline.
Max profit
The premium received if the underlying price expires between the listed strikes.
Max loss
The difference between the strike prices of the spread (call or put spread) minus the premium received. The loss is limited because the opposite spread covers part of the movement.
Risks
This is a very conservative and safe strategy that has a well-controlled loss in advance. With a well-balanced strike spacing and the premium received from both strikes, the maximum loss can be effectively minimized.
Greeks
Delta can be close to 0 (delta neutral position). Theta positive (profit from time decay). Vega negative (increase in volatility can increase risk).
Variations
Narrow Condor (narrower strike spread for higher premium and higher risk), Broken Wing Condor (asymmetric spread for risk/profit shifting).
Usage example
Iron Condor listing on SPY: put written 390, put bought 385, call written 410, call bought 415.
DTE
Typically 30-60 days to expiration. Shorter DTE increases Theta (faster time decay), but also increases the risk of rapid movement.
IV (implied volatility)
Ideal at higher IV, when we expect it to fall (higher entry premium, potential to close with a profit earlier).
Premium
Premium received when entering a position.
Margin
Margin is limited by the difference in strike spread (spread width), reduced by the premium received.
Notes
A popular strategy for profiting in sideways markets. Requires proper spread setting and market monitoring. Not suitable for highly volatile markets.
Tags
iron condor, spread, credit spread, strategy, limited risk, income
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