Iron Condor

What is an Iron Condor?

An iron condor is a four-leg neutral options strategy. You sell a put spread below the current price and sell a call spread above it, all at the same expiration. You collect premium from both sides. The trade profits when the stock stays within a range — between your two short strikes.

Think of it as betting that a stock will not make a big move in either direction. You are selling volatility. If the stock sits still or moves only a little, you win. It is one of the most popular strategies for consistent income generation.

How to Set It Up

Sell 1 OTM put (the bull put spread leg)
Buy 1 further OTM put (defines downside risk)
Sell 1 OTM call (the bear call spread leg)
Buy 1 further OTM call (defines upside risk)
Same expiration for all four legs
Strike selection: Sell the puts and calls at strikes where you think the stock will not reach. Many traders use the 15-20 delta range for the short strikes. Keep both wings the same width for simplicity.
Expiration: 30-45 days out is optimal for time decay.

You collect a combined credit from both spreads. That credit is your max profit.

When to Use This Strategy

Use an iron condor when:

You expect the stock to trade sideways or in a defined range
Implied volatility is elevated (richer premiums to collect)
There are no major catalysts like earnings coming before expiration
You want a defined-risk neutral trade
You want time decay working in your favor

Iron condors shine in boring markets. When nothing is happening and IV is high, that is peak iron condor territory. Avoid them right before earnings, product launches, or macro events that could cause a big move.

Example Trade

Stock XYZ is trading at $100. IV is elevated and you expect it to stay between $93 and $107.

Sell 1 XYZ $95 put for $1.80
Buy 1 XYZ $90 put for $0.80
Sell 1 XYZ $105 call for $1.60
Buy 1 XYZ $110 call for $0.60
Net credit: ($1.80 - $0.80) + ($1.60 - $0.60) = $2.00 ($200 collected)
Max profit: $200
Max loss: ($5 spread width - $2.00 credit) x 100 = $300
Breakeven: $95 - $2.00 = $93 on the downside / $105 + $2.00 = $107 on the upside

If XYZ stays between $95 and $105 through expiration, all four options expire worthless and you keep the full $200.

If XYZ drops to $88 or rallies to $115, you lose the max $300 on one side. Note that you can only lose on one side at a time. The stock cannot be above $105 and below $95 simultaneously.

Risk and Reward

Max profit: Net credit received from both spreads. $200. Achieved when the stock closes between both short strikes at expiration.
Max loss: (Width of one spread - net credit) x 100. $300. Occurs when the stock blows through either short strike and past the long strike.
Breakeven: Two points. Short put minus total credit on the downside. Short call plus total credit on the upside. You have a wide profit zone of $14 in our example ($93 to $107).

The probability of profit on a well-placed iron condor is often 60-75%. You win more often, but when you lose, you lose more than you made. Consistency is what makes it work over time.

Tips and Common Mistakes

Manage winners early. Close at 50% of max profit. If you collected $200, buy back the whole spread for $100 when you can. This dramatically improves your win rate and frees up capital.
Close losers before they hit max loss. If one side is being tested, close the whole trade at 1.5-2x the credit received. Do not wait for max loss.
Do not put iron condors on through earnings. The gap risk is enormous. A stock can easily move 10-15% on earnings and blow through both spreads.
Keep the wings equal width. Uneven wings make risk management harder and can skew your breakevens in confusing ways when you are starting out.

Related Strategies

Iron Butterfly — a variation with short strikes at the same price, higher premium but narrower profit zone
Bull Put Spread — the lower half of an iron condor by itself
Bear Call Spread — the upper half of an iron condor by itself