Strategy description

You can think of the Reverse Iron Condor as simultaneously running an out-of-the-money long call spread and an out-of-the-money long put spread.

This strategy is ideal for traders expecting a significant price movement but uncertain about the direction. Unlike the Iron Condor, which benefits from low volatility, the Reverse Iron Condor thrives in high-volatility environments.

Typically, you set up the spread with the stock price approximately halfway between the two middle strike prices (strikes B and C). If the stock isn't centered at the start, the strategy may lean slightly bullish or bearish. The distance between the lower strike prices (A and B) is usually equal to the distance between the higher strike prices (C and D).

However, the distance between strikes B and C can be adjusted to modify the breakeven points and potential profit range.Your goal is for the stock price to move beyond strike prices A or D at expiration.

The Reverse Iron Condor has a smaller sweet spot than a Straddle or Strangle, but the tradeoff is a lower cost and limited risk.