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Iron condor explained: 4 legs, one range, and the max loss

An iron condor is a bet that a stock stays inside a range until expiry. It collects a premium up front and caps the loss. Here's how it's built, and what a big move does to it.

Beginner guide · 9-minute read · Updated 2026-10-21

The idea in one line

An Iron condor is two credit spreads at once: one below the stock's price, one above it. You collect a premium for both. You keep it if the stock stays between the two sold strikes until expiry.

If credit spreads are new, read vertical spreads explained first. An iron condor is just two of them stuck together.

The 4 legs

Picture a stock at $100. The condor has 4 options, all with the same expiry:

The two sold options (the "body") set your range: $95 to $105. The two bought options (the "wings") cap the damage outside it.

A worked example (an illustration, not a trade idea)

A made-up stock, XYZ, trades at $100. 30 days out (illustrative prices):

• Put side: sell the $95 put for $1.40, buy the $90 put for $0.50 → $0.90 credit
• Call side: sell the $105 call for $1.20, buy the $110 call for $0.40 → $0.80 credit
• Total credit: $1.70, or $170 per condor

Each side is $5 wide. The stock can only finish beyond one side at expiry, never both. So the max loss is one side's width, minus the total credit.

Every outcome at expiry

The shape is a flat-topped hill. Wide and calm in the middle. Steep drops at both ends, then flat again at the max loss.

What makes it work, and what breaks it

It tends to work when:

• The stock stays quiet and inside the range.
• Time passes. Each day, all 4 options lose some value, and the sold ones lose more. See theta decay explained.
• Implied volatility falls after you enter. That lowers the price of the options you sold.

It tends to break when:

• The stock makes one big move in either direction.
• A surprise lands: earnings, a Fed decision, a court ruling, a buyout.
• Implied volatility jumps, which raises the cost to close early.

Why people sell them when IV is high

When Implied volatility is high, options cost more, so the condor collects a bigger credit. After big events, IV often falls sharply. That drop is IV crush, and it can help a condor seller.

But IV is high for a reason. The market is expecting a big move. If that move comes, the condor loses. A higher credit is payment for a higher risk, not a free bonus.

Choosing the range and wings

A useful check: compare your range with the expected move. Our implied volatility guide shows how to turn IV into dollars. If your range is narrower than the expected move, the market thinks a breakout is quite likely.

Managing it before expiry

Many traders don't hold condors to the last day. Common rules people write down:

• A profit rule: close when a set share of the credit has been kept.
• A loss rule: close if the loss reaches a set amount, before it reaches the max.
• A time rule: close before the final week, when moves near the strikes swing the price hard.
• A news rule: close or skip if an earnings report lands before expiry.

Write yours before you enter. In a fast move, there's no time to decide.

Assignment and pin risk

Any sold leg can be assigned if it goes in the money, sometimes early. On expiry day, a stock sitting right at a sold strike is the riskiest case. Our options assignment guide explains why, and why many traders close first.

Size it from the max loss

Size from the $330, not the $170. If your rule is 1% of a $20,000 account, that's $200. One condor with a $330 max loss is too big. A narrower one might fit. See how much to risk per trade.

Common mistakes

• Thinking "the stock never moves that much." Ranges hold until they don't. Big moves are why the wings exist.
• Treating the credit as earned on day one. It's only kept if the stock stays in range.
• Going too far out for a "safer" condor. A $40 credit with a $460 max loss needs over 10 wins to cover one full loss.
• Leaving 4 legs to the last hour. Four options means four chances for assignment surprises.
• Selling over earnings without a plan. A gap can jump straight past a wing.

Try it today (no money needed)

1. Pick a large stock or ETF. Open its chain about 30 to 45 days out.
2. Build a condor with sold strikes roughly at the expected move, and $5 wings.
3. Work out the credit, max loss and both break-evens.
4. Check the shape in the options profit calculator.
5. Write your profit, loss and time rules. Track it on paper to expiry.

Questions