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# Iron Condors vs. Condor Spreads

In my previous article, Flying High With Iron Condors, I described a textbook example of an iron condor. In this article, I will pick up where I left off, and focus on defining the main differences between the iron condor and condor spreads.

It is my belief that studying the iron condor first and completely separately from condor spreads makes the understanding of condor spreads much easier. Therefore, let’s briefly review the iron condor from the previous article without any charts or pictures.

Once again, an iron condor is composed of a bear call and a bull put — both being the vertical credit spreads.

## Iron Condor Entry

iShares Russell 2000 Index (IWM): \$73.91 on June 3, 2008

## Bear Call

BTO + 1 June 76 Call @ -0.69 (debit)
STO – 1 June 75 call @ +1.11 (credit)
Max Profit (Profit/Reward) = + 0.42 (credit)
Max Loss (Loss/Risk) = 0.58

The formula for the max loss is the width of the call strike spread minus the credit received for the bear call. So, in the example above, Max L is: 76 strike minus 75 strikes = 1; 1 – 0.42 of the credit = 0.58.

## Bull Put

BTO + 1 June 70 Put @ -0.29 (debit)
STO – 1 June 71 put @ +0.41 (credit)
Max P (Profit/Reward) = + 0.12 (credit)
Max L (Loss/Risk) = 0.88

The formula for the max loss is the width of the put strike spread minus the credit received for the bull put. So, in the example above, Max L is: 71 strike minus 70 strikes = 1; 1 – 0.12 of the credit = 0.88.

Iron condor combined credit is 0.54 (or \$54). The amount comes from the credit from the bull put (0.12) plus the credit from the bear call (0.42).

The maintenance that should be held by the broker should be the greater of the two max losses, which would be the one on the bull put.

## Iron Condor at Expiry

IWM: \$72.55 on June 20, 2008

The table below visually presents the facts that both the bear call and the bull put have expired worthless, therefore, allowing us to keep the maximum premium of \$54 without paying any additional commission.

 Strike Price Value at Expiry Initial cost June 76 Call Zero (0.69) June 75 Call Zero 1.10 June 71 Put Zero 0.41 June 70 Put Zero (0.29)

## Three Major Differences Between Iron Condors and Condor Spreads

Now I will explain the three major differences between the iron condor and condor spreads.

1. Condor spreads are made up of the same class of options, either all call options or all put options.

The reverse side of condors is the iron condor, which by default consists of both calls and puts. Hence, in the future when you hear some trader mentioning an iron condor trade, there is no need for clarification as to which option class the trader used — both were utilized.

Nevertheless, if the condor spread is mentioned the question remains: Was it a call condor spread or a put condor spread? The adjectives do make a big difference when it comes down to option trading.

2. The sold (or short) iron condor is basically a credit spread, which is not the case with the sold (or short) condor spread, which generally end up being a debit spread.

3. Usually the sold iron condor is composed of out-of-the-money options, whereas the condor spread could be composed of in-the-money options.

In conclusion, I have completed my explanation of a textbook example of an iron condor by focusing on the mathematical side of it. I have also described the three main differences between the iron condor and condor spreads.

Once again, be a net seller of premium at any given time, especially in the market conditions that we currently have.