Iron condor
Sell an OTM call spread and put spread to profit from a range-bound move.
The iron condor is a neutral, defined-risk options strategy that profits when a stock stays within a specific price range until expiration. It's one of the most popular income strategies among options traders because it collects premium from both sides of the market simultaneously.
Bias: Neutral
Risk profile: Defined
Ideal conditions: High IV rank (above 50), low-movement stock or index expected
How it's constructed
An iron condor combines two vertical spreads:
- Bear call spread (upper wing): Sell an OTM call, buy a further OTM call at a higher strike
- Bull put spread (lower wing): Sell an OTM put, buy a further OTM put at a lower strike
All four legs share the same expiration date. The result: you collect a net credit upfront and profit if the stock stays between your two short strikes.
Setup example
SPY is trading at $510. You set up an iron condor:
- Sell the $525 call / Buy the $530 call (bear call spread) → collect $0.80
- Sell the $495 put / Buy the $490 put (bull put spread) → collect $0.90
- Total credit collected: $1.70 per share ($170 per condor)
Max profit, max loss, breakevens
| Metric | Calculation | Value |
|---|---|---|
| Max profit | Net credit collected | $170 per condor |
| Max loss | Spread width − net credit | $330 per condor |
| Upper breakeven | Short call strike + net credit | $526.70 |
| Lower breakeven | Short put strike − net credit | $493.30 |
| Profit zone | Between $493.30 and $526.70 | $33.40 wide |
When to use an iron condor
Best conditions:
- IV rank above 50, elevated premium makes the credit more attractive
- Stock or index expected to remain range-bound (post-earnings, low-catalyst period)
- You want defined risk on both sides
Avoid when:
- IV rank is low, the credit collected won't justify the risk
- A major catalyst is approaching (earnings, FOMC) that could move the stock outside your range
- The stock has been trending strongly in one direction
Managing an iron condor
Iron condors don't require holding to expiration. Many traders close at 50% of max profit. If you collected $170, you close the entire position when it can be bought back for $85.
Adjustments if tested:
- If the stock threatens one side, you can roll that side further OTM for a credit
- You can close the untested side for a small debit and use the proceeds to defend the tested side
- If the stock breaks through a strike, assess whether to close and take the defined max loss
Iron condor vs short strangle
An iron condor is a defined-risk version of a short strangle. The difference is the long options on the outside, they cap your max loss at the spread width, reducing risk but also reducing the credit collected. For most retail traders, the defined risk structure of the iron condor is preferable.
Greeks profile
- Delta: Near zero at entry (neutral)
- Theta: Positive, time decay works in your favor every day
- Vega: Negative, benefits from falling IV after entry
- Gamma: Negative, large stock moves work against you
Related terms: Bull put spread, bear call spread, short strangle, iron butterfly, defined risk, IV rank, theta, vega
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