Iron Condors and Butterflies
Defined-risk premium selling and the discipline that keeps it from blowing up
A premium seller's central problem is that uncovered short options have unbounded loss. The investor who sold a $200 strike call on a stock that closed at $325 owes the buyer $125 per share at expiration; the investor who sold a $200 put on a stock that fell to $50 owes $150. The mathematics of short options is concave — the seller is paid a fixed premium up front in exchange for assuming a tail that can outrun any reasonable margin posting.
Defined-risk structures solve that problem by adding long wing options at strikes further from the money. The short legs collect most of the premium; the long wings cap the loss. The two canonical defined-risk structures are the iron condor (four strikes, profits when the stock stays in a wide range) and the butterfly (three strikes, profits when the stock lands near a single body strike).
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 9 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Reference iron condor — long 180P / short 190P / short 210C / long 220C
- 2Reference butterflies — long-call butterfly $190/$200/$210 vs iron butterfly $190/$200/$200/$210
- 3Iron Condor / Butterfly Builder
- 4Defined-risk Greeks and the math that defines the trade-off
- 5Iron condor P&L at expiration by closing price ($180P/$190P/$210C/$220C, $3.88 credit)
- 6Theta and Gamma scaling by DTE — iron condor 180/190/210/220 (S=$200, σ=30%)
- 7SPX iron condors as a systematic premium-harvest strategy
- 8Where to see this on the platform
- 9Summary