Strategy guide
Iron Condor Strategy
An iron condor sells an out-of-the-money call spread and an out-of-the-money put spread on the same expiration.
Strategy summary
- Market outlook
- neutral
- Risk type
- defined
- Capital requirement
- (Widest wing − credit) × 100 per condor
- Maximum profit
- Net credit if price finishes between the short strikes
- Maximum loss
- Widest wing minus credit
- Theta / vega
- positive / negative
- Assignment risk
- moderate
- Typical use
- Range-bound, defined-risk premium selling
Payoff at expiration
- Max profit$180.00
- Max loss-$320.00
- Breakevens$93.20, $106.80
How Iron condor works
It collects premium when the stock stays in a range, with a known maximum loss, which makes position sizing straightforward.
Exact option legs
Bear call spread + bull put spread on the same expiration
- BUY 1 × $90.00 put expiring 2026-01-16 at $0.80
- SELL 1 × $95.00 put expiring 2026-01-16 at $1.70
- SELL 1 × $105.00 call expiring 2026-01-16 at $1.80
- BUY 1 × $110.00 call expiring 2026-01-16 at $0.90
Payoff, breakeven and risk
At expiration the position is worth the intrinsic value of each leg. The maximum profit is $180.00, the maximum loss is -$320.00, and the position breaks even at $93.20 and $106.80.
Worked example
With the underlying at $100.00:
- The condor collects a net credit of 1.80 for $5-wide wings.
- Maximum profit is $180 inside the short strikes and maximum loss is $320 outside the wings.
- Breakevens are 93.20 and 106.80.
Strike selection
Place the short strikes near or beyond one expected move so small moves stay inside the range, and keep the wings wide enough to hold a real cushion.
Expiration selection
Condors decay fastest in the last weeks; shorter expirations raise annualized return but reduce the room to adjust.
Effect of time decay
This structure is positive on theta: net time decay works in its favour.
Effect of implied volatility
It is negative on vega: falling implied volatility helps.
Effect of stock movement
The position suits a neutral view, and it is tested most when the underlying moves outside the modelled strikes.
Assignment considerations
Assignment risk is moderate. Short legs can be assigned, especially when they are in the money or before a dividend; long legs have no obligation but can be exercised.
When it works poorly
- Trending markets that push the price toward a wing.
- Events that expand the expected move after entry.
- Low implied volatility that pays little for the risk.
Common mistakes
- Selling short strikes inside the expected move and treating the range as likely.
- Ignoring that one side can lose while the other expires worthless.
- Adding condors in the same ticker so a single move hits every position.
Tax caveat
Option outcomes can receive different tax treatment from share trades, and assignment changes the holding period and cost basis. This is general information, not tax advice; confirm your situation with a qualified professional.
FAQ
- How is max loss calculated?
- The wider wing width minus the credit received, per condor.
- When should I use an iron condor?
- When you expect the stock to stay within a range and want defined risk on both sides.
- How do I choose the strikes?
- Often near or beyond one expected move, using the expected-move tool.
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