Iron condor

How a iron condor works

An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread on the same underlying and expiry. Four legs, one net credit. The position profits when the price stays between the two short strikes through expiry — you are being paid to say the stock will not go very far in either direction.

Each side is already defined-risk on its own: the long wings sit further out and cap what either spread can cost you. Because the underlying cannot finish below the short put and above the short call at the same time, only one side can ever be breached, so the maximum loss is one wing's width minus the credit — not both.

The position makes money from time passing and from implied volatility falling. That also describes how it loses: a sharp move in either direction, or a volatility expansion, works against all four legs at once. Iron condors typically win often and lose bigger when they lose, which is a profile that flatters itself over short samples.

A worked example

XYZ trades at $100 and you expect it to stay range-bound for the next 30 days. You sell the $95 put and buy the $90 put; you sell the $105 call and buy the $110 call. Both wings are $5 wide. The four legs net a $1.50 per share credit.

You risk $350 to make $150. The profit zone is wide and the trade is comfortable most months, but the arithmetic means roughly two full losses erase seven wins — position sizing matters more here than in almost any other structure.

When a iron condor fits — and when it doesn't

Common questions