What Is an Iron Condor? Options Strategy Explained With Examples

By Forex & Brokers DeskUpdated Nov 10, 2026

Key takeaways

Maximum loss equals the spread width minus the net credit, times 100, using the wider wing if widths differ.
Breakevens sit at the short put strike minus the credit and the short call strike plus the credit.
In the $100 XYZ example, the trader risks $350 to make $150 and profits between $93.50 and $106.50.
Theta helps the position, while a rise in implied volatility raises the cost of closing it.

An iron condor is a four-leg options strategy that combines a bull put spread and a bear call spread on the same underlying with the same expiration. The trader sells an out-of-the-money (OTM) put and an OTM call, buys a further-OTM put and a further-OTM call as protection, and collects a net credit when opening the trade. The position makes its maximum profit if the underlying finishes between the two short strikes at expiration. Both the maximum profit and the maximum loss are fixed when the trade is placed.

The goal is to profit when a stock, ETF or index stays inside a range, while capping the damage if it breaks out. In effect, it sells volatility with defined risk: the position gains when the underlying moves less than option prices implied.

Iron condor components

Leg	Action	Strike position	Role
Long put	Buy	Lowest strike, furthest OTM	Caps loss on a drop
Short put	Sell	Below current price	Collects premium
Short call	Sell	Above current price	Collects premium
Long call	Buy	Highest strike, furthest OTM	Caps loss on a rally

The bull put spread (sell a higher-strike put, buy a lower-strike put) earns a credit and keeps it if the underlying stays above the short put strike. The bear call spread (sell a lower-strike call, buy a higher-strike call) earns a credit and keeps it if the underlying stays below the short call strike. Put together, they create a profit zone between the two short strikes.

The long options are what make the trade “iron” rather than a naked short strangle. Without them, losses beyond the short strikes would have no limit on the call side and would extend down to zero on the put side.

How the iron condor strategy works

At expiration, the result depends on where the underlying settles relative to the four strikes. Only one side can lose money at expiration, because the price cannot be below the put strikes and above the call strikes at the same time.

Price at expiration	What happens	Result
Between the short strikes	All four options expire worthless	Maximum profit (full credit kept)
Between short put and long put	Put spread has value, call spread expires worthless	Reduced profit or partial loss
Between short call and long call	Call spread has value, put spread expires worthless	Reduced profit or partial loss
Below the long put or above the long call	One spread is fully in the money	Maximum loss

The key formulas, for an iron condor with equal-width wings:

Maximum profit = net credit × 100
Maximum loss = (spread width − net credit) × 100
Lower breakeven = short put strike − net credit
Upper breakeven = short call strike + net credit

If the two wings have different widths, the maximum loss is based on the wider wing, because that side can lose more.

Why the Greeks matter

An iron condor is short gamma and short vega. In plain terms:

Theta (time decay) works in the trader’s favor. As expiration approaches with the underlying inside the range, the short options lose value and the position can be bought back for less than the credit received.
Vega works against the trader. A rise in implied volatility raises option prices, which increases the cost of closing the condor even if the underlying has not moved.
Gamma grows as expiration nears. Close to expiry, a modest move toward a short strike can swing the position’s value quickly.

Building an iron condor

Choose the underlying. Look for a stock, ETF or index expected to stay range-bound, with liquid options, tight bid-ask spreads and high open interest. You pay the spread on four legs when opening and again when closing early.
Pick the expiration. Options within about two weeks of expiry decay faster but leave little time to react to a sharp move. Options 60 or more days out decay more slowly and are more sensitive to changes in implied volatility.
Set the short strikes where the probability of finishing in the money is low. Many traders use delta as a rough guide: a “16-delta iron condor,” for example, places the short strikes near the 0.16 delta level, roughly one standard deviation from the current price.
Set the long strikes further OTM. A wider gap between short and long strikes raises both the credit collected and the maximum loss.
Calculate the net credit: premium received on the short legs minus premium paid on the long legs.
Enter all four legs as one order with a net credit limit, which most brokers offering multi-leg trading allow, so you are not filled on one side but not the other.
Plan management in advance: hold to expiration, take profit at a set fraction of the credit, or close if the price reaches a short strike.

There is a basic trade-off in strike selection. Moving the short strikes further from the price makes it more likely the underlying finishes inside the range, but the credit shrinks and the ratio of risk to reward gets worse. Moving them closer increases the credit but narrows the profit zone.

Iron condor strategy example

The following is a hypothetical example for illustration only. Stock XYZ trades at $100. A trader expects little movement over the next 30 days and opens one iron condor:

Leg	Strike	Premium per share
Buy put	$90	−$0.50
Sell put	$95	+$1.30
Sell call	$105	+$1.20
Buy call	$110	−$0.50

Net credit = 1.30 + 1.20 − 0.50 − 0.50 = $1.50 per share, or $150 for one contract of 100 shares.

Maximum profit: $150
Maximum loss: ($5 width − $1.50) × 100 = $350
Lower breakeven: $95 − $1.50 = $93.50
Upper breakeven: $105 + $1.50 = $106.50

Assumptions: the position is held to expiration, there is no early assignment, and commissions and slippage are ignored.

XYZ at expiration	Value of losing spread	Profit or loss
$100	$0	+$150
$94	Put spread $1.00	+$50
$93.50	Put spread $1.50	$0
$92	Put spread $3.00	−$150
$85 or lower	Put spread $5.00	−$350
$108	Call spread $3.00	−$150
$115 or higher	Call spread $5.00	−$350

The trader risks $350 to make $150 and profits at expiration anywhere between $93.50 and $106.50, a $13 range around a $100 stock. The flat-topped payoff chart, with sloped sides and flat floors on each end, resembles a bird with a wide wingspan, hence the “condor” name.

Note what the numbers say: the maximum loss is more than twice the maximum gain. An iron condor with far-OTM short strikes may win more often than it loses, but one full loss can erase the profit from several winning trades. Probability of finishing inside the range is not the same as expected profit.

Adjusting an iron condor

Strike placement can tilt the position toward a directional view while keeping the defined-risk structure.

Bullish iron condor: the put spread moves closer to the current price and the call spread moves further away. The trade collects more credit from the put side and gains room on the upside, but a smaller decline now puts it at risk.
Bearish iron condor: the call spread moves closer and the put spread moves further OTM. This favors a flat or falling market and accepts more risk if the underlying rallies.

Traders also use unequal wing widths, sometimes called an unbalanced iron condor, to change risk on one side. A wider put wing, for instance, collects more credit but raises the maximum loss on the downside.

Once a trade is open, common management choices include closing the whole condor early to lock in part of the credit, closing only the threatened spread, or rolling the untested spread closer to the price to collect extra credit. Each adjustment adds transaction costs and can change the maximum loss, so recalculate the risk after any change.

Long (reverse) iron condor

A long iron condor, also called a reverse iron condor, flips every leg: the trader buys the inner put and call and sells the outer ones, paying a net debit. The maximum loss is that debit, paid if the underlying stays between the inner strikes. The maximum gain is the spread width minus the debit, reached if the price moves beyond either outer strike. It is a defined-risk bet on a large move or a rise in volatility, the opposite view from the short iron condor described above.

Iron condor pros and cons

Pros

Risk is defined at entry, so the worst-case loss is known before placing the trade.
Profits from time decay without needing a directional call.
Lower capital requirement than selling naked options, since many brokers base the margin on the defined maximum loss.
Strikes, widths and expiration can be tuned to a neutral, bullish or bearish outlook.

Cons

Limited reward, often smaller than the maximum loss.
Four legs mean four sets of commissions and bid-ask spreads, which can take a noticeable share of a small credit.
Assignment risk: American-style short options can be exercised early, particularly a short call near an ex-dividend date or a deep in-the-money short option.
Pin risk at expiration: if the price settles near a short strike, it may be unclear whether that option will be exercised, leaving an unexpected stock position after the close.

Strategy	Structure	Key difference
Short strangle	Sell OTM put and OTM call	No protective wings; loss is not capped
Iron butterfly	Short put and short call at the same strike, plus wings	Larger credit, narrower profit zone
Single credit spread	Only the put spread or call spread	Directional; profits on one side only
Covered call	Own shares, sell a call	Bullish income strategy tied to stock ownership; see covered call strategy

FAQs

Is an iron condor a good strategy for beginners?

It is one of the more complex mainstream strategies, combining four options and two spreads, though its risk is capped and known in advance. Understanding single credit spreads first helps, and a paper trading simulator lets you see how time decay and price moves affect the position without risking capital.

Can an iron condor be traded on futures or index options?

Yes. The structure works on any underlying with listed puts and calls across several strikes, including index options and options on futures. The multiplier and settlement style differ by contract: many broad index options are European-style and cash-settled, which removes early-assignment risk, while equity and ETF options are typically American-style.

The Bottom Line

An iron condor suits options traders who expect a stock, ETF or index to stay in a range and want a known worst case. Because the maximum loss often exceeds the maximum gain, a high chance of finishing inside the range does not guarantee expected profit. Choose liquid options, enter all four legs as one order, plan exits in advance and recalculate risk after any adjustment.