# Iron Condor

> An iron condor sells a put spread and a call spread to profit if price stays in a range. Learn the payoff, strike and width choices, adjustments and the main risks.

Source: https://learn.tradelabsai.com/options/iron-condor/  
Track: Options · Level: Advanced · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Iron Condor", https://learn.tradelabsai.com/options/iron-condor/

An iron condor combines a bull put spread below the market with a bear call spread above it, all with the same expiration. You collect a credit from both spreads. If the underlying stays between the two short strikes until expiration, every option expires worthless and you keep the full credit. If it breaks out beyond either spread, losses are capped by the long options. Iron condors are one of the most popular ways to sell premium with defined risk in range bound markets.

## Construction

| Leg | Example (index at 5,000) |
|---|---|
| Buy a lower put | 4,700 put |
| Sell a higher put | 4,750 put |
| Sell a lower call | 5,250 call |
| Buy a higher call | 5,300 call |

The short strikes define the profit range; the long strikes cap the loss.

## Payoff at a glance

| Feature | Iron condor |
|---|---|
| Outlook | Neutral, range bound |
| Maximum gain | Net credit |
| Maximum loss | Width of the wider spread minus net credit |
| Break evens | Short put minus credit; short call plus credit |
| Time decay | Helps |
| Rising implied volatility | Hurts |

*Figure: An iron condor at expiration: capped profit inside the range, capped losses outside.*

## Worked example

**Example: A 45 day iron condor**
On an index at 5,000, you sell the 4,750 put and 5,250 call and buy the 4,700 put and 5,300 call, collecting a net credit of 12 points. With a $100 multiplier, that is $1,200.

- **Index between 4,750 and 5,250 at expiry:** keep $1,200.
- **Break evens:** 4,738 and 5,262.
- **Index at 4,700 or below, or 5,300 or above:** maximum loss of (50 minus 12) × $100 = $3,800.

You risk $3,800 to make $1,200. The trade needs to win roughly 76% of the time to break even before costs.

## Choosing strikes

- **Short strikes by delta:** many traders sell around the 10 to 20 delta options on each side, which places the range about one standard deviation away. See [Delta](https://learn.tradelabsai.com/options/delta/).
- **Short strikes by levels:** outside clear support and resistance. See [Support and Resistance](https://learn.tradelabsai.com/price-action/support-and-resistance/).
- **Width:** wider wings collect more credit but increase the maximum loss.
- **Balance:** equal distances give a neutral position; skewing strikes adds a directional tilt.

## When iron condors work

- **Implied volatility is high** relative to expected movement, so premiums are rich. See [IV Rank and IV Percentile](https://learn.tradelabsai.com/volatility/iv-rank-and-iv-percentile/).
- **No major events** before expiry.
- **Range bound markets** with low trend strength. See [Range Trading](https://learn.tradelabsai.com/strategies/range-trading/).

## Managing iron condors

- **Take profits at 50%** of the credit; holding for the rest adds risk with little reward.
- **Close at about 21 days to expiry** to avoid rising gamma.
- **Adjust when tested:** if price approaches one side, roll the untested side closer to collect more credit, or roll the tested spread further out in time.
- **Set a loss limit,** such as two times the credit received.

## Risks

- **Breakouts:** one strong move can wipe out the profits of several winning trades.
- **Volatility spikes** raise the value of the short options.
- **Gap risk** over weekends and news.
- **Costs:** four legs to open and possibly four to close.
- **Early assignment** on a short leg in American style products. See [Exercise and Assignment](https://learn.tradelabsai.com/options/exercise-and-assignment/).

## Iron condor vs short strangle

A short strangle sells the same put and call without buying the protective wings. It collects more premium but has no cap on losses. The iron condor's wings make the risk defined, which is why it is preferred for most traders. See [Strangle](https://learn.tradelabsai.com/options/strangle/).

## Frequently asked questions

### What is an iron condor?

A four leg options strategy that sells an out of the money put spread and an out of the money call spread, profiting if the underlying stays between the short strikes.

### What is the maximum loss on an iron condor?

The width of the wider spread minus the net credit received, multiplied by the contract size.

### When should you use an iron condor?

When you expect the underlying to stay in a range and implied volatility is relatively high, without major events before expiry.

Next, learn the tighter version in [Iron Butterfly](https://learn.tradelabsai.com/options/iron-butterfly/).

## Continue learning

- Next lesson: [Iron Butterfly](https://learn.tradelabsai.com/options/iron-butterfly/)
- Previous lesson: [Diagonal Spreads](https://learn.tradelabsai.com/options/diagonal-spreads/)
- Related: [Diagonal Spreads](https://learn.tradelabsai.com/options/diagonal-spreads/): A diagonal spread buys a longer dated option and sells a shorter dated one at a different strike. Learn how it works, the poor man's covered call and its risks.
- Related: [Iron Butterfly](https://learn.tradelabsai.com/options/iron-butterfly/): An iron butterfly sells an at the money straddle and buys wings for protection. Learn the payoff, how it compares with an iron condor and how to manage it.
- Related: [Bull Put Spread](https://learn.tradelabsai.com/options/bull-put-spread/): A bull put spread sells a put and buys a lower strike put for a net credit. Learn the payoff, probability, strike and width choices, and how to manage losers.
- Related: [Bear Call Spread](https://learn.tradelabsai.com/options/bear-call-spread/): A bear call spread sells a call and buys a higher strike call for a credit. Learn the payoff, how it caps short call risk, strike choices and trade management.
- Related: [Theta Harvesting](https://learn.tradelabsai.com/options/theta-harvesting/): Theta harvesting sells options to collect time decay and the volatility risk premium. Learn the evidence, the common structures and how to survive the tail risk.
- Related: [Strangle](https://learn.tradelabsai.com/options/strangle/): A strangle buys or sells an out of the money call and put. Learn how it compares with a straddle, break evens, strike choices and the risks of short strangles.