Iron Condor

An iron condor is a four-leg, range-bound trade. You sell a bull put spread below the market and a bear call spread above the market, all same expiration. Net credit at entry. Profit if the stock finishes between the inner (short) strikes at expiration. Loss if price breaches a wing beyond the long options.

Traders use it when they expect low movement relative to implied volatility, not when they expect a breakout. Index condors are common in education; single-name condors carry gap and earnings risk that index traders still face on macro days.

Liquidity and execution

Symmetrical condors need liquidity on all four strikes. Uneven open interest can leave one wing expensive to exit. Place the whole condor as one order when possible; partial fills can leave you with a naked vertical on one side.

Structure

Typical strikes (low to high): K1 < K2 < K3 < K4

Side	Legs	Purpose
Put wing	Long K1 put, short K2 put	Credit below spot
Call wing	Short K3 call, long K4 call	Credit above spot

• Entry: Net credit (put credit + call credit).
• Max profit: Total credit × 100.
• Max loss (one side): (Wing width − credit allocated to that side) × 100. Often both wings same width; max loss is one wing width minus total credit if only one side is breached.
• Profit zone: Between K2 and K3 at expiry (inner short strikes).

Example: stock $100. Put wing $85/$90, call wing $110/$115, total credit $2.00. Max profit $200. If stock finishes at $102, all legs may expire OTM and you keep credit.

Worked example

Stock at $100, 45 DTE.

1. Bull put spread: buy $85 put, sell $90 put, credit $0.80.
2. Bear call spread: sell $110 call, buy $115 call, credit $1.20.
3. Total credit = $2.00 ($200 per condor).

Put wing width $5, call wing width $5. If stock closes at $120 at expiry, call side max loss ≈ $5 − share of credit. If stock closes at $98, both sides may expire worthless: keep $200.

Breakevens are roughly: lower = short put strike minus total credit; upper = short call strike plus total credit (adjust per your exact fills).

Payoff at expiration

Stock at expiry	Typical outcome
$88	Put wing loss approaching max on that side
$95	Near max profit (inside body)
$100	Max profit if inside K2–K3
$112	Call wing threatened
$118	Call wing max loss zone

The payoff chart looks like a flat plateau between inner strikes and drops on each tail.

Greeks for this position

Net delta is often near zero at entry if the condor is balanced around spot. Directional drift matters: stock trending to a wing builds delta against you on that side.

• Theta: Positive (net short premium). Time decay helps if price stays in the body. See Theta explained.
• Vega: Negative. You are short volatility in spirit. IV expansion hurts mark-to-market. Vega explained covers IV risk.
• Gamma: Negative near short strikes as expiry nears. Small moves into a wing accelerate losses.

When traders consider it

Situation	Iron condor vs alternatives
Wide expected range	Iron butterfly needs a tighter pin
Strong trend expected	Avoid condor; consider directional vertical
Cheaper long-vol bet	Long strangle instead of short range

Read iron condor vs iron butterfly for width tradeoffs.

Risks and management

• One-sided breach: Only one wing may lose; max loss is not "both wings" unless price swings through both (rare in one expiry).
• Early assignment on short options ITM.
• Gap risk: Opens beyond a long strike can skip past your planned exit.
• Commissions: Four legs multiply costs. Wide credits on illiquid names may not justify risk.
• Adjustments: Rolling, widening, or closing challenged wings is common among experienced traders but adds complexity.

Many traders close at 25–50% of max profit or at a fixed loss multiple of credit received.

Wing placement

Wings further OTM collect less credit but fail less often. Wings closer collect more credit with less room. Symmetric condors around spot are common on indices; stock condors sometimes skew put side wider if downside fear is priced in.

Adjustments (awareness only)

Tested condor traders may roll the untested side, widen wings, or convert to a butterfly when one side is threatened. Each fix trades risk for complexity. There is no free adjustment.

Common mistakes

• Sizing too large because "max loss is defined."
• Opening just before earnings without accepting gap risk.
• Ignoring half the position when one side is tested.
• Using illiquid wings where long options barely trade.

Closing vs holding to expiration

Iron condors are rarely held to the last day by active traders. Wings gain gamma as expiry approaches; a slow drift to a short strike can become expensive quickly. Partial profit targets (25–50% of credit) trade maximum theoretical return for fewer tail events. If one side is tested, closing the whole condor versus only the threatened wing is a judgment call that changes risk.

Mark-to-market before expiration

Condors often show gradual profit as theta works if spot stays in the body. A drift toward one short strike increases delta on that side and shrinks open profit. IV expansion can hurt all short premium even without a breach. Tested-side management begins when price sits on a short strike with rising gamma.

Use the builder to see how much credit remains at risk if spot moves 1 standard deviation (your own estimate) before expiry.

Tax and reporting (high level)

Four legs can mean four 1099 lines. Track net economics on your spreadsheet. Not tax advice.

Try in ThetaViz

Model iron condor with live strikes, breakevens, and combined Greeks on the payoff chart.

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ThetaViz provides educational tools only. This guide is not investment, tax, or legal advice. Prices, margin requirements, and tax rules change. Confirm details with your broker and qualified professionals before trading.