Advanced Strategies: Iron Condors
Iron condors are multi-leg, range-bound strategies built from a short call spread plus a short put spread. They are popular because they define risk, collect premium, and benefit from time decay if the stock stays inside a planned range.
Before You Trade
These examples and charts are simplified teaching models. Confirm live pricing, liquidity, and assignment risk in your broker before placing real trades.
Multi-leg favorite
Defined risk, steady theta, neutral bias
Condors shine when you expect price to stay in a zone. You collect credit up front, and every day that price stays between your short strikes, theta decay works in your favor. You are not betting on direction, you are betting on "not too far" in either direction.
Range thesis in plain English
Structure
Short call spread + short put spread
You sell an out-of-the-money call spread and put spread with the same expiration. The short strikes define the "range" and the long strikes cap your worst-case loss.
Example iron condor on a $100 stock: Sell 95/90 put spread + sell 105/110 call spread, collect $2.40 credit.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Payoff
Breakevens and max loss are known
Maximum profit is the credit received. Maximum loss is the width of one spread minus the credit. Breakevens sit just outside the short strikes, giving you a buffer zone.
Time decay effect: most of the premium erodes faster in the final weeks.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Greeks
Small delta, positive theta, negative vega
Condors are typically near delta-neutral. They like time passing (positive theta) and benefit when implied volatility falls after you sell the spreads.
Example Greek mix for a centered iron condor.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Greek example
Management
Plan exits before the market decides for you
Condors are slow and steady. You want to take wins early and cut risk when price approaches the short strikes. Management is about protecting the range, not hoping for a reversal.
Common management triggers for range traders.
Illustrative example only: chart values are simplified to teach mechanics and are not live quotes or trade forecasts.
Managing losers
Who This Is For
Traders comfortable with vertical spreads who want to profit from range-bound stocks using a defined-risk, multi-leg strategy.
Learning Objectives
- • Describe an iron condor as a short call spread combined with a short put spread.
- • Calculate max profit (credit), max loss (wing width minus credit), and breakeven prices.
- • Understand why condors benefit from time decay and falling implied volatility.
- • Apply management rules: take profits early, adjust when a short strike is tested.
Risk Note
Iron condors have defined risk, but max loss is often 2–4× the credit collected. A strong directional move through one side can result in full max loss quickly. Always know your max loss before entering and manage actively when price approaches either short strike.
Example Walkthrough
Scenario: XYZ is at $100. You sell a $95/$90 put spread and a $105/$110 call spread (all same expiration, 45 DTE). Total credit: $2.40 ($240).
Best case: XYZ stays between $95 and $105
All four options expire worthless. You keep the full credit: +$240.
Worst case: XYZ drops below $90 or above $110
Max loss = (wing width − credit) × 100 = ($5 − $2.40) × 100 = −$260.
Breakevens: Lower = $95 − $2.40 = $92.60. Upper = $105 + $2.40 = $107.40. Price must stay inside this range for the trade to be profitable at expiration.
Common Mistakes
Setting ranges too narrow
Tight condors collect more premium but break quickly. Give the stock enough room by checking expected move and historical ranges.
Holding to expiration for full profit
Condors gain most of their value in the first 50–70% of the trade. Holding for the last 20% exposes you to gamma risk for small additional gains.
Not adjusting when a short strike is tested
Ignoring a tested side leads to max loss. Roll the threatened side or close the untested side to reduce risk.
Trading condors on trending stocks
Iron condors are range-bound strategies. Avoid them on stocks with strong momentum or pending catalysts that could drive a breakout.
Quick Recap
- • An iron condor = short call spread + short put spread. You profit when price stays in a range.
- • Max profit is the credit received; max loss is wing width minus credit. Both are known at entry.
- • Manage by taking profits at 50%, and adjust or exit when a short strike is challenged.
Next lesson
Strangles & Straddles
Up nextLearn the difference between tight vs wide range trades and how volatility changes the setup.
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