Iron Condor: how the position works

A bull put spread and a bear call spread sold together on the same expiry, one below the market and one above. You collect both credits and keep them if the underlying finishes between the two short strikes. It is the canonical range trade: four legs, defined risk on both sides, and a profit that depends on nothing happening.

Market view: Neutral — range-bound
Opened for: Credit
Maximum profit: The total net credit. Kept in full anywhere between the two short strikes at expiry.
Maximum loss: The width of the wider wing, less the total credit. Only one side can finish in the money, so the two wings never lose together.
Breakeven: Two: K₂ − total credit below, and K₃ + total credit above.

How it is built

Sell 1 put at K₂ and buy 1 put at K₁ (K₁ < K₂), below the market
Sell 1 call at K₃ and buy 1 call at K₄ (K₄ > K₃), above the market
All four legs share an expiry

All figures above are quoted per share and settle at expiry. A standard equity option covers 100 shares, so multiply by 100 for a single contract.

Before expiry: the Greeks

Delta near zero when centred, short vega, positive theta. The structural feature to understand is negative gamma at both short strikes: the position is calm in the middle and becomes violent at either edge, so risk is not distributed evenly across the range. Vega is the other live exposure — a general rise in implied volatility hurts even with the underlying pinned in the middle, because both short legs reprice upward at once.

When to use it

When implied volatility is high relative to what you expect to be realised, and you can name a range you believe will hold. Selling four legs into a quiet market with thin premium takes the same risk for a fraction of the reward, so the volatility level matters more than the directional view.

What goes wrong

The reward is small and the risk is large by design. Collecting two dollars to risk eight means a handful of losses erases many wins, so this only works with consistent sizing and an exit rule decided in advance.
Both wings reprice on a volatility spike. A market-wide shock widens the whole surface, and the position can show a substantial loss while the underlying is still comfortably inside the range.
Four legs, four spreads to cross twice. Execution friction is the largest fixed cost in this structure and it scales with how narrow the wings are.
Pin risk at expiry, where a short strike finishing near the money leaves an uncertain assignment you find out about after the close.

A worked example

SPY at 580, 40 days out. Sell the 555 put / buy the 545 put for 1.55, and sell the 605 call / buy the 615 call for 1.35.

Total credit received: $2.90 per share — $290 for one condor
Width of each wing: $10.00
Maximum profit: $290, anywhere between 555 and 605
Maximum loss: $710 ((10 − 2.90) × 100), at or beyond either long strike
Lower breakeven: $552.10 (555 − 2.90)
Upper breakeven: $607.90 (605 + 2.90)

Commissions, exchange fees, financing and the bid/ask spread are excluded. On a multi-leg position the spread is usually the largest of these. With four legs the round-trip spread cost is a material fraction of the $290 collected.

Common questions

How wide should the short strikes be?

Wider strikes raise the probability of keeping the credit and lower the credit itself; the expected value moves far less than either. Choose the range from where you genuinely think the underlying trades, then check whether the credit pays enough for the risk of being wrong.

Can both sides lose?

No. The underlying can only finish on one side of the range, so at most one wing is in the money at expiry. That is why the maximum loss is one wing's width rather than two.

When should I adjust?

Decide before entering. The common approaches are rolling the untested side closer to collect more credit, or closing the whole position at a set multiple of the credit received. Adjusting improvised under pressure usually adds risk to a position that is already losing.

Related strategies

Educational only. This page explains how a structure behaves; it is not a recommendation to trade it. Options and futures carry substantial risk, and short and leveraged positions can lose more than the amount originally invested.