Iron Condor
An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread on the same expiry. It earns the premium if price stays between the short strikes, and the bought options cap the maximum loss.
An iron condor is a bet that a market will stay inside a range. You sell a call and a put above and below the current price, collect premium, and buy further-out options to cap the damage if you are wrong. That makes it the defined-risk cousin of the short strangle — and one of the most popular income strategies among options traders. This entry walks through the structure, the maths and the traps.
- Category
- Derivatives
- Reading time
- 4 min
- Also called
- Iron condors, Condor spread
- Updated
Iron condors in plain words
To build one, you sell a call and buy a higher-strike call, and sell a put and buy a lower-strike put; usually the gaps between the call strikes and between the put strikes are equal.1
The best result comes if the stock finishes between the short put and the short call at expiry, and the worst if it ends beyond either long strike.1
You can think of it as a short strangle plus a long, wider strangle that limits the risk.1
How to set up an iron condor, step by step
Expect a range
Look for a market likely to stay calm until expiry. See Range.
Sell the inner strikes
An out-of-the-money call above and put below the price.
Buy the outer strikes
Further-out options cap the loss — the condor's wings.
Collect the net credit
Premium received minus premium paid. See Option Premium.
Know your numbers
Max gain = net credit; max loss = wing width − net credit.
Manage early
Many traders close at a set profit or when price nears a short strike.
Worked examples
Example 1 — Price stays in the range
+$150Stock at $100. Sell the $110 call, buy the $115 call; sell the $90 put, buy the $85 put. Net credit $1.50. At expiry the stock is $103.
| Net credit kept | $1.50 × 100 = $150 |
| All options expire worthless | No further cost |
The maximum gain — the net premium — comes when the stock ends between the inner strikes.1
Example 2 — Price breaks out
−$350Same condor, but the stock rallies to $120 at expiry.
| Call spread loss | ($115 − $110) × 100 = −$500 |
| Credit received | +$150 |
| Net (maximum loss) | −$350 |
Maximum loss is the width of one spread minus the net premium, reached beyond an outer strike.1
Example 3 — Break-even points
Profit zone $88.50–$111.50Same condor, net credit $1.50.
| Upper break-even | $110 + $1.50 = $111.50 |
| Lower break-even | $90 − $1.50 = $88.50 |
| Reward-to-risk | $150 : $350 ≈ 0.43 : 1 |
Iron condors usually win small and often, and lose bigger and less often — so sizing matters. See Risk-to-Reward Ratio.
Iron condor vs short strangle
| Aspect | Iron condor | Short strangle |
|---|---|---|
| Legs | Four | Two |
| Premium | Lower | Higher |
| Maximum loss | Capped | Unlimited. See Straddle and Strangle |
| Margin needed | Smaller, defined | Larger |
When traders use iron condors
Range-bound markets
Earning premium while price goes sideways.
High implied volatility
Selling rich premium that may shrink. See Implied Volatility.
Index options
Popular on broad indexes, which tend to move less than single stocks.
Defined-risk income
A capped-loss alternative to selling naked options. See Naked Options.
Advantages and disadvantages
Advantages
- Maximum loss is known in advance.
- Profits from time decay and calm markets.
- Needs less margin than naked strategies.
Disadvantages
- Small maximum gain compared with maximum loss.
- Four legs mean more commissions and spreads.
- Big moves or volatility spikes hurt quickly.
Going deeper
Read as far as you need. Each level builds on the one before it.
Credit and width
Beginner
Max gain is the net credit; max loss is the width of one spread minus that credit. A $5-wide condor taking in $1.50 risks $3.50 to make $1.50 per share.1
Choosing strikes
Intermediate
Short strikes further away win more often but collect less. Many traders pick short strikes by delta — for example around 0.15–0.20 — to estimate the chance of finishing inside. See Option Greeks.
Managing the trade
Advanced
Rather than holding to expiry, traders often take profits at a fraction of the maximum and adjust or close a side when price approaches a short strike, since gamma rises sharply near expiry. Each short leg can also be assigned, which obliges you to buy or sell the shares at its strike.2 See 0DTE Options.
Common mistakes
Going too wide on size
One max loss can erase many small wins.
Holding into expiry near a strike
Gamma risk and assignment rise sharply.
Selling into low volatility
Little premium for the same risk.
Ignoring events
Earnings or news can blow through the range.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- An iron condor is a short put spread plus a short call spread.
- It profits when price stays in a range.
- Max gain = net credit; max loss = wing width − credit.
- It is a defined-risk version of a short strangle.
- Wins are small and frequent, losses larger and rarer.
Frequently asked questions
Is an iron condor a good beginner strategy?
Why is it called a condor?
What is a long iron condor?
Further learning
- Vertical Spread
The two halves of an iron condor.
- Straddle and Strangle
The uncapped version.
- Implied Volatility
What makes premiums rich or thin.
- Option Greeks
Delta, gamma and time decay.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- OCC Options Education. Short Condor (Iron Condor) (opens in a new tab) Checked .
- FINRA. Options (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.