Iron Condor at a glance
| Construction | Buy 1 put four strikes below the current price, sell 1 put two strikes below, sell 1 call two strikes above, and buy 1 call four strikes above, all in the front month expiration, for a net credit. |
|---|---|
| Outlook | Neutral |
| Volatility view | Wants falling IV |
| Max profit | Net credit × 100. |
| Max loss | (Spread width minus net credit) × 100, where spread width is the short put strike minus the long put strike, or the long call strike minus the short call strike. |
| Breakeven | Lower breakeven = short put strike minus net credit. |
| Experience level | Intermediate |
| Also called | Short iron condor |
How a iron condor works
An iron condor pairs a bull put spread below the market with a bear call spread above it. Both spreads are sold for a credit, and the long options at the outer strikes cap how much either side can lose. Since the stock cannot finish below the put spread and above the call spread at the same time, only one side can lose at expiration, which is why the risk is measured from a single spread width rather than both.
At expiration, the payoff is a flat plateau between the short put and the short call, where all four options expire worthless and you keep the full credit. Below the short put, the loss grows one dollar per share for each dollar of decline until the long put strike, then flattens. Above the short call, the same thing happens up to the long call strike. The plateau is wider than an iron butterfly's, but the credit is smaller.
Before expiration, the iron condor earns time decay as long as the stock stays between the short strikes, and it gains when implied volatility falls. Its Greeks change shape as expiration nears: early on the position is fairly insensitive to small moves, but in the final weeks gamma concentrates near the short strikes and a move toward either one can turn a winning trade into a losing one quickly. That is why condors are commonly managed before the final week.
Iron Condor example with real numbers
With the stock at $100, implied volatility at 30%, a 4.1% risk free rate and no dividend, you would buy 1 90 put (32 days) at $0.45, sell 1 95 put (32 days) at $1.43, sell 1 105 call (32 days) at $1.78, buy 1 110 call (32 days) at $0.74. That is a net credit of $202. At expiration a maximum profit of $202 and a maximum loss of $298, with breakevens at $92.98 and $107.02. The lognormal chance of profit is 57%.
These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the iron condor calculator above to run the same math on real market prices.
When to use a iron condor
- You expect the stock to stay within a range and want a defined risk way to sell premium.
- Implied volatility is high relative to its history and you expect it to decline.
- You want a wider profit zone than an iron butterfly and accept a smaller credit.
- Your account does not permit naked option selling, so a short strangle is not available.
Max profit, max loss and breakeven
Maximum profit
Net credit × 100. It is kept in full if the stock closes between the short put strike and the short call strike at expiration.
Maximum loss
(Spread width minus net credit) × 100, where spread width is the short put strike minus the long put strike, or the long call strike minus the short call strike. With equal widths, as built here, the maximum loss is the same on either side.
Breakeven
Lower breakeven = short put strike minus net credit. Upper breakeven = short call strike plus net credit.
Iron Condor Greeks
- Delta: Close to zero at entry. It becomes negative as the stock rallies toward the short call and positive as it falls toward the short put.
- Gamma: Negative, small at entry and concentrated near the short strikes as expiration approaches.
- Theta: Positive while the stock stays between the short strikes; it can turn negative once the stock moves beyond a short strike.
- Vega: Negative. Rising implied volatility increases the value of the short options and creates open losses.
See the live numbers for your position in the Greeks tab of the calculator, or explore a single option in the options Greeks calculator.
Early exercise and assignment risk
Both short options start out of the money, so early assignment is unusual unless the stock moves through a short strike. If it rallies above the short call and an ex dividend date is near, the call can be assigned the day before the ex date once its time value falls below the dividend. You are then short 100 shares, with the long call, the put spread and no short call left. The long call still caps the risk, but you owe the dividend if you are short on the ex date, so a tested short call is often closed or rolled ahead of it.
On the put side, a short put that ends up deep in the money can be assigned early, leaving you long 100 shares that the long put protects. Expiration brings pin risk at the two short strikes: if the stock closes near the short put or short call, assignment on that leg is uncertain while the long option on that side expires out of the money, so an after hours move could leave you with an unhedged 100 share position. Closing a condor whose short strike is in play before the final bell avoids it.
The calculator's Early exercise risk tab flags short legs that are likely to be assigned. For a single option, use the early exercise calculator or read how early exercise and assignment work.
Pros and cons
Pros
- Defined risk with no naked margin requirement.
- Wide profit zone that does not require predicting direction.
- Earns from time decay and falling implied volatility.
- Only one side can lose at expiration, so risk is based on one spread width.
Cons
- The maximum loss is often larger than the credit, so one full loss can erase the gains from several winning trades.
- Gamma risk rises sharply near expiration if the stock approaches a short strike.
- Four legs mean more commissions and wider combined quotes.
- Profit is capped at the credit even if the stock stays perfectly still.
How to manage a iron condor
- Close the condor once a solid share of the credit is captured rather than holding the last few cents to expiration.
- When one side is tested, roll the untested spread closer to collect more credit, or roll the whole condor out in time.
- Define an exit point in advance, such as a loss equal to a multiple of the credit or a breach of a short strike.
- Avoid holding through expiration with the stock near a short strike.
Iron Condor FAQ
How does an iron condor make money?
An iron condor makes money when the stock stays between its two short strikes and the options lose value through time decay and falling implied volatility. The full credit is kept if all four options expire worthless. Many traders close early once most of the credit has been earned.
What is the max loss on an iron condor?
The maximum loss on an iron condor is the width of one spread minus the net credit, times 100. It occurs if the stock closes at or beyond either long strike at expiration. Only one side can lose because the stock cannot finish beyond both.
Iron condor vs short strangle: what is the difference?
An iron condor is a short strangle with long wings added, which caps the loss on both sides at the cost of a smaller credit. A short strangle has unlimited upside risk and requires naked option approval, while an iron condor's risk is fixed at entry.
Can an iron condor be assigned early?
Yes, a short leg of an iron condor can be assigned early once it is in the money, because US stock options are American style. The short call is most at risk the day before an ex dividend date, and a deep in the money short put whenever its time value is nearly gone. The long option on the same side keeps the risk defined after assignment.
Related strategies
Iron Butterfly
An iron butterfly is a neutral, defined risk credit strategy that sells an at the money put and call and buys an out of the money put and call as protective wings.
Short Strangle
A short strangle is a neutral options strategy where you sell an out of the money put and an out of the money call on the same stock and expiration to collect premium.
Reverse Iron Condor
A reverse iron condor is a defined risk long volatility strategy that buys an out of the money put spread and an out of the money call spread on the same stock and expiration.
Bull Put Spread
A bull put spread is a two leg credit spread that sells a put and buys a lower strike put in the same expiration.
Educational tool, not financial advice. Calculations are theoretical and depend on your inputs; real fills, fees, early assignment and dividends can change results. Options involve risk and are not suitable for every investor.