IRON CONDOR
Overview
Sell an OTM put spread and an OTM call spread simultaneously. The four legs create a wider profit zone than an iron butterfly — you collect a credit and keep it as long as the stock stays between both short strikes at expiration. The most popular defined-risk neutral income strategy.
What it does
You're collecting premium from both sides of the market, betting the stock won't move dramatically in either direction. The short put spread forms the downside income; the short call spread forms the upside income. As long as the stock stays between both short strikes, both spreads expire worthless and you keep the entire credit. The wings cap your loss if the stock breaks out in either direction.
Structure
sell 1 OTM put + buy 1 further OTM put + sell 1 OTM call + buy 1 further OTM call
Setup
- 1.Sell 1 OTM Put.
- 2.Buy 1 further OTM Put (lower wing).
- 3.Sell 1 OTM Call.
- 4.Buy 1 further OTM Call (upper wing).
- 5.All same expiration.
Max profit
Total Net Credit Received. Realized if the stock closes between the two short strikes at expiration.
Max loss
(Width of the wider spread − Net Credit) × 100. Occurs if the stock blows through either short strike.
Breakeven
Lower: Short Put Strike − Net Credit. Upper: Short Call Strike + Net Credit.
When to use
When you expect the stock to trade sideways in a defined range and implied volatility is elevated (sell high IV).
When to avoid
Before earnings, FOMC, or any catalyst likely to cause a large price move.
Example trade
Stock: SPY at $430 Sell 1 SPY $415 Put at $1.80 / Buy 1 SPY $405 Put at $0.90 Sell 1 SPY $445 Call at $1.60 / Buy 1 SPY $455 Call at $0.90 Net Credit: $1.60 ($160) | Expiration: 35 days Profit Range: $413.40 to $446.60 Max Profit: $160 Max Loss: ($10 - $1.60) × 100 = $840
Common mistakes
- ×Selling condors with wings too narrow — leaves no buffer for normal day-to-day price fluctuation.
- ×Not managing the breached side — if the stock approaches one short strike, act before max loss.
- ×Setting-and-forgetting during volatile markets — iron condors need active monitoring.
- ×Entering in low-IV environments where the credit barely justifies the risk.
- ×Over-sizing — condors have a high win rate but occasional large losses; too many contracts amplifies the damage.
FAQ
What is a typical win rate for an iron condor?
An iron condor using 16-delta short strikes typically wins roughly 70–75% of the time. However, losses when they occur are 3–4x larger than the average win.
When should I close an iron condor?
Most traders close at 50% of max profit (buy back for half the original credit). This locks in most profit while eliminating expiration-week gamma risk.
What if one side gets breached?
You can roll the breached spread out and away, close the entire condor, or take the max loss on one side while keeping the other side's premium.