Iron Condor Option Strategy

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The iron condor option strategy is a favorite among many option traders, including hedge funds, money managers, and individual investors. The options strategy is executed by simultaneously selling a bear call spread, and bull put spread. It gets its name due to the fact that the graph looks like a bird spreading its wings. There are four separate strike prices executed with this strategy, all of which have the same expiration month.
iron condor
In most cases, this strategy is executed right in the middle between the inner strike prices, points B and C, while the distance between puts and the calls are roughly the same.
The draw of this strategy is the more substantial net credit received for selling both an out of the money call spread and out of the money put spread at the same time, but more conservative than a straddle or strangle, as max losses are capped.


Investors who feel the stock price will not have much movement before expiration would execute an iron condor, allowing the investor to collect a larger premium. In addition, the margin required to execute an iron condor is the same as a single vertical spread, even though two vertical spreads are being executed here. The reason, the trader is guaranteed to win at least one side of the trade.
The iron condor is a favorite options trading strategy among many options traders due to its risk versus reward possibilities. A trader that executes an iron condor hopes that the underlying stock will have a narrow trading range so that the option falls between the two short strikes on expiration. It can also be executed with slight bullish or bearish tendencies, depending on the range of the iron condor and its relation to the stock price.
It is almost always wise to take the position off a few days before expiration to avoid any unexpected movement in the stock, which could cause a winning trade turn into a losing trade. Remember, markets can move swiftly and without warning, and although the higher the implied volatility, the higher the net credit the trader can receive, the more volatile and riskier the trade will be. For this reason, it’s always smart to understand exactly what you’re risking and how you can adjust the trade should the market move against you.


The trader starts to lose on this trade once the stock moves outside the inner short strike prices, and penetrate the call spread upper side or the put spread on the lower side. The maximum loss is calculated by taking the difference between either the call side or put side minus the premium received.  Same as a bear call spread or bull put spread.
The maximum win is established if the stock expires between the two short strikes, represented by point B and C on the graph above.


There are two breakeven points on an iron condor.
Upper Breakeven = short call strike + credit received
Lower breakeven – short put strike – credit received


If stock XYZ is trading at $100, a trader could sell a 105-110 call spread for $1.50 net credit, while also selling a 90-95 put spread for $1.50. There the trader would receive a total premium of $3.
If the stock traded down to $96, the trader would keep the full $3 premium, and all the options would expire worthless.
If the stock traded up to $112, then the trader would lose $7 on the 105-strike price call, and gain $2 on the 110-strike price call, receiving a net loss of $5. However, because they sold this position for $3, their max loss would only be $2 ($5-$3).


The iron condor is a favorite options strategy for investors who are predicting a neutral market. The further out of the money a trader goes, the better their chances of success, but the lower premium the trader will receive. It is best to open this strategy with 30-60 days to expiration, where time decay starts to pick up. It allows investors to enter positions with limited risk, high returns on capital, along with a high probability of success.

Chris Douthit
Chris Douthit

Chris Douthit, MBA, CSPO, is a former professional trader for Goldman Sachs and the founder of His work, market predictions, and options strategies approach has been featured on NASDAQ, Seeking Alpha, Marketplace, and Hackernoon.