Iron Condor

What Is an Iron Condor?

An iron condor profits when the underlying stays within a defined range by expiration. It combines a bull put spread below current price and a bear call spread above it, collecting net credit upfront. Both maximum profit and loss are defined at entry.

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The trade consists of two vertical spreads creating a “condor” shape on a P&L diagram — wide profit zone in the middle, defined losses outside the wings. You collect premium from selling closer strikes and pay for further strikes (wings) that cap maximum loss. Net credit defines maximum profit, achieved if the underlying expires between the two short strikes. Maximum loss occurs if the underlying moves beyond either wing.

Example structure (SPY at $500):

• Sell the $490 put / Buy the $485 put (bull put spread, +$1.50 credit)
• Sell the $510 call / Buy the $515 call (bear call spread, +$1.50 credit)
• Net credit: $3.00 ($300 per contract)
• Max profit: $300 (underlying expires between $490-$510)
• Max loss: $200 per side (spread width of $5 minus $3 credit)

Why It Matters for Options Traders

Iron condors are among the most popular defined-risk income strategies, especially in high-IV environments. When IV is elevated, option premiums are rich. Selling that premium through a structure defining maximum loss is attractive. Theta decay works in the seller’s favor as expiration approaches.

The weakness: large, fast moves in either direction can breach the short strikes. Condor traders typically enter when IV is relatively high (using IV Rank or IV Percentile), choose expirations giving the position time to work, and monitor for adjustment or exit.

Common adjustments include rolling a threatened side (buying back the tested spread, selling a new one further out or at later expiration), adding directional bias if one side is clearly threatened, or accepting the loss if the underlying decisively breaks the short strike.

Key Parameters

• Width of wings: Wider wings cost more to buy but provide more protection; narrower wings define tighter max loss
• Distance of short strikes: Closer shorts collect more premium but give the underlying less room to move; further shorts give more room but less premium
• Days to expiration (DTE): Theta decay accelerates in the final weeks; 30-45 DTE is a common entry window; 0DTE condors are a distinct high-risk variant
• Probability of profit: Typically 60-80% at entry, reflecting the statistical expectation that the underlying stays within range