Trading term

What is Iron condor?

An iron condor is an options strategy that sells an out-of-the-money put spread and an out-of-the-money call spread at the same time. It collects premium and profits if the price stays within a range, with a defined maximum loss on either wing. It's a bet that the market won't move much.

An iron condor is built from four options: you sell a put and a call closer to the current price (collecting premium) and buy a further-out put and call as protection (defining your risk). The result is a wide 'profit zone' in the middle — as long as price stays between the two short strikes at expiry, all four options expire favourably and you keep the net credit. It's the classic range-bound, income-generating strategy.

The appeal is a high probability of a small, defined profit. Because the short strikes are out of the money, the market can drift within a wide band and you still win, collecting the premium as the options decay. The risk is capped by the long 'wings': if price breaks out beyond a short strike, your loss is limited to the spread width minus the credit. The trade-off is the usual one for premium sellers — you win often but small, and the occasional breakout loss is larger than any single win, so risk management and position sizing are everything.

Iron condor — profit from a range
$0 P&Lprofitloss$45$55$43$57underlying price at expiry →Iron condor · keep the $2 credit if price stays $45–$55; losses capped by the wings

Sell the $45 put and $55 call, buy the $40 put and $60 call for a $2 credit. Keep the $2 if price stays between $45 and $55; the long wings cap the loss on a breakout.

For example

With a stock at $50, you sell a $45 put and $55 call and buy a $40 put and $60 call, for a $2 net credit. If the stock finishes between $45 and $55, you keep the $200. Beyond the short strikes your loss grows, capped at the $5 wing width minus the $2 credit — a $3 ($300) maximum loss per side.

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Why it matters to you

The iron condor is the signature strategy for profiting from a quiet, range-bound market — where directional traders have nothing to do, a condor earns from time decay and stability. Its fully-defined risk on both sides makes it a staple for income-focused options traders who want to sell premium without unlimited exposure.

⚠ Small wins, occasional bigger losses

Iron condors win most of the time, which lulls traders into oversizing them. But the math is asymmetric: each win is the small credit, while a breakout loss is the larger wing width. One unmanaged loss can erase many wins. The edge lives entirely in disciplined sizing and adjusting — not in the high win rate, which is seductive but misleading.

Frequently asked questions

What is an iron condor?

An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread on the same underlying and expiry. It collects a net premium and profits if the price stays between the two short strikes, with a defined maximum loss capped by the long 'wings.'

When do you use an iron condor?

In range-bound, low-volatility markets where you expect the price to stay within a band. The condor profits from time decay and stability, making it an income strategy for sideways conditions rather than a directional bet.

What is the maximum loss on an iron condor?

It's capped at the width of one spread (the distance between a short strike and its protective long strike) minus the net credit received. If price breaks beyond a short strike and stays there, you realise that defined maximum loss — but no more, thanks to the long wings.

Why is risk management important with iron condors?

Because the payoff is asymmetric: you win often but each win is the small credit, while a breakout loss is the larger wing width. A single oversized or unmanaged loss can wipe out many wins, so position sizing and adjusting the trade are what make (or break) the strategy.

Related terms

Call optionA call option is a contract giving the buyer the right — but not the obligation — to buy an asset at a fixed 'strike' price before a set expiry date. Call buyers are betting the price will rise; their risk is capped at the premium paid, while the potential profit is open-ended.Cash-secured putA cash-secured put is an options strategy where you sell a put option while setting aside enough cash to buy the stock if you're assigned. You collect the premium as income; in exchange, you agree to buy the stock at the strike if it falls there. It's a way to get paid to buy a stock you want at a lower price.Covered callA covered call is an options strategy where you own 100 shares of a stock and sell a call option against them. You collect the premium as income; in exchange, you cap your upside at the strike. It's a popular way to generate income on shares you're happy to hold or sell.DeltaDelta measures how much an option's price moves for each $1 change in the underlying. A delta of 0.60 means the option gains about $0.60 if the stock rises $1. It ranges from 0 to 1 for calls (0 to −1 for puts) and doubles as a rough probability the option finishes in the money.
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