Reverse Iron Condor at a glance
| Construction | Sell 1 put four strikes below the current price, buy 1 put two strikes below, buy 1 call two strikes above, and sell 1 call four strikes above, all in the front month expiration, for a net debit. |
|---|---|
| Outlook | Big move either way |
| Volatility view | Wants rising IV |
| Max profit | (Spread width minus net debit) × 100, where spread width is the distance between the long and short strike on either side. |
| Max loss | Net debit × 100. |
| Breakeven | Lower breakeven = long put strike minus net debit. |
| Experience level | Advanced |
| Also called | Long iron condor |
How a reverse iron condor works
A reverse iron condor is a bear put spread and a bull call spread bought together. Equivalently, it is a long strangle with a farther out of the money strangle sold against it to cut the cost. You pay a debit and need the stock to move outside the inner long strikes by more than that debit. Unlike a long strangle, the gains stop at the outer short strikes, but the price of entry and the daily time decay are lower.
At expiration, between the two long strikes all four options expire worthless and the debit is lost. Beyond the long call, the call spread gains one dollar per share for each dollar of rally until the short call strike, where profit caps at the spread width minus the debit. The put side behaves the same way on a decline. The chart is a wide flat floor in the middle with raised flat shoulders on both sides.
Before expiration, the position is long gamma and long vega while the stock is between the long strikes, though both are modest because the long options are out of the money and partly offset by the short wings. Time decay is the steady cost. A breakout early in the trade shows a smaller gain than the expiration chart because the spreads have not yet widened to full value, so the payoff usually needs both a move and the passage of time.
Reverse 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 sell 1 90 put (32 days) at $0.45, buy 1 95 put (32 days) at $1.43, buy 1 105 call (32 days) at $1.78, sell 1 110 call (32 days) at $0.74. That is a net debit of $202. At expiration a maximum profit of $298 and a maximum loss of $202, with breakevens at $92.98 and $107.02. The lognormal chance of profit is 43%.
These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the reverse iron condor calculator above to run the same math on real market prices.
When to use a reverse iron condor
- You expect a breakout from a range, such as after a long consolidation or around an event, but are unsure of the direction.
- You want long volatility exposure cheaper than a long strangle and can accept capped gains.
- Implied volatility is low, making the long spreads inexpensive.
Max profit, max loss and breakeven
Maximum profit
(Spread width minus net debit) × 100, where spread width is the distance between the long and short strike on either side. It is earned if the stock closes at or beyond either short strike at expiration.
Maximum loss
Net debit × 100. It occurs if the stock closes anywhere between the long put strike and the long call strike at expiration.
Breakeven
Lower breakeven = long put strike minus net debit. Upper breakeven = long call strike plus net debit.
Reverse Iron Condor Greeks
- Delta: Near zero at entry, then positive on a rally and negative on a decline until the stock reaches a short strike.
- Gamma: Positive between the long strikes, turning negative near the short wings where gains flatten.
- Theta: Negative while the stock stays between the long strikes.
- Vega: Positive but modest, since the short wings offset part of the long options' sensitivity.
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
In a reverse iron condor the sold options are the outer wings, so assignment is a concern only after the stock has moved past one of them, the same place the trade earns its maximum profit. A short call that is in the money before an ex dividend date can be assigned early, leaving you short 100 shares. Your long call, two strikes lower, is deeper in the money and covers those shares, so you can exercise it or buy the shares and sell the long call to lock in the gain.
On the downside, a deep in the money short put can be assigned early, giving you 100 shares that the long put offsets. At expiration, pin risk centers on the outer strikes. If the stock closes near the short call strike, your long call is exercised automatically and you receive 100 shares, while the short call may or may not be assigned. Closing both legs on that side before the final bell keeps you from carrying an unplanned stock position into the next session.
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 profit from a move in either direction.
- Cheaper than a long strangle, with lower time decay.
- Assignment risk appears only when the trade is already at maximum profit.
Cons
- Profit is capped, so a very large move earns no more than a moderate breakout.
- The stock must clear a long strike plus the debit, which takes a meaningful move.
- Loses value every day the stock stays inside the long strikes.
How to manage a reverse iron condor
- Open with enough time to expiration for the expected breakout, since decay accelerates late.
- Take profits once the stock trades near a short strike, because the remaining upside is small.
- If the catalyst passes without a move, close early to salvage the remaining time value.
- If a short wing is assigned, flatten the shares with the long option on that side and close the other spread.
Reverse Iron Condor FAQ
What is a reverse iron condor?
A reverse iron condor is a four leg debit spread that buys a call spread above the market and a put spread below it. It profits from a breakout in either direction, with risk limited to the debit and profit capped at the spread width minus the debit.
Reverse iron condor vs long strangle: how do they compare?
A reverse iron condor costs less and decays more slowly than a long strangle with the same long strikes, but its profit is capped at the short strikes. A long strangle keeps unlimited upside and large downside potential at a higher price. The choice depends on how far you expect the stock to move.
When does a reverse iron condor reach max profit?
A reverse iron condor reaches maximum profit when the stock closes at or beyond either short strike at expiration. At that point one spread is worth its full width and the other expires worthless.
What is the biggest risk in a reverse iron condor?
The biggest risk in a reverse iron condor is that the stock stays between the long strikes, so the full debit is lost to time decay. Losses are capped at that debit, but a quiet market works against the position every day.
Related strategies
Iron Condor
An iron condor is a neutral, defined risk credit strategy that sells an out of the money put spread and an out of the money call spread on the same stock and expiration.
Long Strangle
A long strangle is the purchase of an out of the money call and an out of the money put with the same expiration.
Reverse Iron Butterfly
A reverse iron butterfly is a defined risk long volatility strategy that buys an at the money put and call and sells an out of the money put and call to cut the cost.
Short Call Condor
A short call condor is a four leg credit spread built with calls that profits when the stock makes a large move in either direction by 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.