The Iron Condor is a limited risk, non-directional option trading strategy that is designed to have a large probability of earning a small limited profit when the underlying security is perceived to have low volatility. The Iron Condor strategy can also be visualized as a combination of a Bull Put Spread and a Bear Call Spread.
Buy 1 put at the lowest strike price; Sell 1 put at the second-lowest strike price; Sell 1 call at the second-highest strike price; Buy 1 call at the highest strike price. Use the same expiration date.
Using options expiring on the same expiration month, the option trader creates an Iron Condor by selling a lower strike out-of-the-money put, buying an even lower strike out-of-the-money put, selling a higher strike out-of-the-money call and buying another even higher strike out-of-the-money call. This results in a net credit to put on the trade.
Limited Profit
Maximum gain for the Iron Condor strategy is equal to the net credit received when entering the trade. Maximum profit is attained when the underlying stock price at expiration is between the strikes of the call and put sold. At this price, all the options expire worthless.
The net premium received.
Limited Risk
Maximum loss for the Iron Condor spread is also limited but significantly higher than the maximum profit. It occurs when the stock price falls at or below the lower strike of the put purchased or rise above or equal to the higher strike of the call purchased. In either situation, maximum loss is equal to the difference in strike between the calls (or puts) minus the net credit received when entering the trade.
The wider of the put spread and call spread, minus the net premium received.
Breakeven Point(s)
There are 2 break-even points for the Iron Condor position. The breakeven points can be calculated using the following formulae.
Lower breakeven: short put strike minus the net premium received. Upper breakeven: short call strike plus the net premium received. Each must fall within its corresponding spread.
Example
Suppose XYZ stock is trading at $45 in June. An options trader executes an Iron Condor by buying a JUL 35 put for $50, writing a JUL 40 put for $100, writing another JUL 50 call for $100 and buying another JUL 55 call for $50. The net credit received when entering the trade is $100, which is also his maximum possible profit.
On expiration in July, XYZ stock is still trading at $45. All the 4 options expire worthless and the options trader gets to keep the entire credit received as profit. This is also his maximum possible profit.
If XYZ stock is instead trading at $35 on expiration, all the options except the JUL 40 put sold expire worthless. The JUL 40 put has an intrinsic value of $500. This option has to be bought back to exit the trade. Thus, subtracting his initial $100 credit received, the options trader suffers his maximum possible loss of $400. This maximum loss situation also occurs if the stock price had gone up to $55 instead.
To further see why $400 is the maximum possible loss, let’s examine what happens when the stock price falls to $30 on expiration. At this price, both the JUL 35 put and the JUL 40 put options expire in-the-money. The long JUL 35 put has an intrinsic value of $500 while the short JUL 40 put is worth $1000. Selling the long put for $500, he still needs $500 to buy back the short put. Subtracting the initial credit of $100 received, his loss is still $400.
These examples use standard U.S. stock options with a 100-share contract size and matching expiration dates. Related structures can use ETF, index or futures options, but contract multipliers, exercise style, settlement and the underlying price range can differ. A stock’s zero price floor must not be assumed for every futures contract.
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Commissions
Commission charges can make a significant impact to overall profit or loss when implementing option spreads strategies. Their effect is even more pronounced for the Iron Condor as there are 4 legs involved in this trade compared to simpler strategies like the vertical spreads which have only 2 legs.
For active traders, transaction costs can consume a significant part of returns. Compare the full commission and fee schedule, exercise and assignment charges, and bid-ask spreads. The cost of entering and closing every leg matters.
Similar Strategies
The following strategies offer related market exposure. Compare their construction, cost, maximum loss and assignment obligations; a similar outlook does not mean identical risk.
The Reverse Iron Condor
The converse strategy to the Iron Condor is the reverse or short Iron Condor. Short Iron Condors are used when one perceives the volatility of the price of the underlying stock to be high.
Wingspreads
The Iron Condor spread belongs to a family of spreads called wingspreads whose members are named after a myriad of flying creatures.
Before expiration and assignment
The diagrams and worked outcomes describe expiration payoffs, not an option’s market price before expiration. Time decay, implied volatility, rates, dividends and bid-ask spreads affect early closing values. American-style short options can be assigned early; a protective long option is not automatically exercised when a short leg is assigned. Closing or exercising one leg can change the remaining position’s risk.
Amounts are per share before fees. Multiply by the shares covered by the position; standard equity options usually cover 100 shares per contract. If a maximum profit or loss calculation gives a negative amount, use zero. These figures assume matching contracts held to expiration and do not include financing or early assignment.
Compare This Strategy
Optional further reading to help you compare the tradeoffs.
- Iron Condor vs Iron Butterfly — A trader expecting a range may compare the Condor’s flat maximum-profit zone with the butterfly’s larger central peak.
- Jade Lizard vs Iron Condor — The decision is whether to retain a firm downside limit, not just which position collects more premium.
- Iron Condor vs Double Diagonal — Choose between a fixed same-expiration payoff and an exposure that also depends on the term structure of volatility.
Advanced Strategy Variations
Build on the core strategies with these less common structures. Match the option legs and expirations when comparing names.
Short-term options applications
Explore Short-Term Options Trading to see how weekly, 1DTE and 0DTE expirations affect timing, price sensitivity and expiration risk. Availability and settlement depend on the selected product and series.
