Stock Option Return - Iron Condor Return

Iron Condor Return

The iron condor is a neutral strategy and consists of a combination of a bull put credit spread and a bear call credit spread (see above). Ideally, the margin for the Iron Condor is the maximum of the bull put and bear call spreads, but some brokers require a cumulative margin for the bull put and the bear call. The return calculation for the Iron Condor position using the maximum margin of the bull put credit spread and the bear call credit spread and assuming price of the stock or index at expiration is greater than the sold put option and less than the sold call option is shown below:

Iron Condor Potential Return = (bull put net credit + bear call net credit)/{max - initial credits}

For example, for the bear put portion of the iron condor a put option with a strike price of $90 for GHI stock is sold at $1.00 and a put option for GHI with a strike price of $80 is purchased for $0.50. And, suppose for the bear call portion of the iron condor a call option with a strike price of $100 for GHI stock is sold at $1.00 and a call option for GHI with a strike price of $110 is purchased for $0.50, and at the option's expiration the price of the stock or index is greater than the short put strike price of $90 and less than the short call strike price of $100. The return generated for this position is:

GHI Iron Condor Return = /{max(110-100,90-80) - } = 11.1%.