What is an iron condor?
In one line: An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread on the same stock and expiry. It collects a premium with a capped loss.
The 4 legs
A stock trades at $100. All options expire on the same date.
- Buy the $90 put (protection below).
- Sell the $95 put.
- Sell the $105 call.
- Buy the $110 call (protection above).
That's two vertical spreads at once (see Vertical spread). Say you collect a premium of $1.60 in total, or $160 per condor.
What can happen at expiry
| Stock at expiry | Result per condor |
|---|---|
| Between $95 and $105 | All expire. +$160 (max gain) |
| $93.40 or $106.60 | Break-even. $0 |
| $90 or below, or $110 or above | −$340 (max loss) |
- Max loss: width of one spread minus the credit: ($5 − $1.60) × 100 = $340.
- Break-evens: $95 − $1.60 = $93.40, and $105 + $1.60 = $106.60.
A math example, not a promise. Commissions left out, and they matter more with 4 legs. Model it in the options profit calculator.
Why it matters
An iron condor is a bet that price stays inside a range. It gains from time passing (Theta) and from Implied volatility falling.
The honest shape: you collect a small amount to risk a larger one. Here, $160 against $340. If price leaves the range, one bad trade can take back two good ones.
A common mistake
Treating "high probability" as "safe." Condors often expire in range, but the losses are bigger than the gains. What counts is the math over many trades, not how often it works.
The other trap is news. An Earnings report or a Fed day can push a stock right through your strikes overnight.
Size it on the max loss. If $340 is too much to lose on one trade, the trade is too big. See how much to risk per trade.
The building blocks are in options trading basics.
Questions
What is the max loss on an iron condor?
The width of one spread minus the total credit, times 100. Only one side can lose at expiry, since price can't be above and below at once.
When do traders use iron condors?
When they expect a stock to stay in a range and option prices look high. It's not a fit before big news.
Can an iron condor be assigned early?
Yes. The sold legs can be assigned before expiry, especially if one goes deep in the money.
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