Options strategies

Iron Condor Strategy Explained: Setup, Max Profit, Max Loss and Breakevens

Level: Advanced · 10 min read · Updated October 11, 2026

An iron condor is an options strategy that sells a bull put spread and a bear call spread on the same underlying and expiration for one net credit. It has four legs: buy a lower put, sell a higher put, sell a call above the price and buy a call higher still. If the underlying finishes between the two short strikes at expiration, all four options expire worthless and you keep the whole credit; if it finishes beyond either long strike, you lose the width of that spread minus the credit. It is a range bet with both the gain and the loss capped.

Below: how to build one, the formulas with a worked hypothetical example, why time decay and falling implied volatility help it, why it tends to produce many small gains and occasional large losses, how traders manage it, the earnings trap and the iron butterfly. One standard contract covers 100 shares, and all prices are made up for illustration.

A hand-drawn iron condor payoff at expiration: a flat profit plateau (max profit = credit) between the short strikes at 90 and 110, sides sloping down to flat, capped losses beyond the long strikes at 85 and 115, circles at the two breakevens and a highlighted profit zone between them. Above it, a faint bell curve of where the price might finish, centered on today’s price of 100, with its tails beyond the breakevens shaded red.

What is an iron condor?

An iron condor is two credit spreads on the same underlying with the same expiration, one below the current price and one above it. The put side profits if the stock stays above the short put; the call side profits if it stays below the short call. Both sides can win together, but at expiration only one can lose, because the stock cannot finish below the puts and above the calls at the same time.

The name describes the payoff: a wide flat body with a wing on each side. “Iron” means it mixes puts and calls; a plain condor uses four calls or four puts. The two spreads are usually the same width. If credit spreads are new to you, read our vertical spreads guide first, and the options strategies overview shows where the condor fits. The four legs, from the lowest strike up:

Buy one out-of-the-money put: the lower wing.
Sell one put at a higher strike, still below the current price: the short put.
Sell one call above the current price: the short call.
Buy one call at a higher strike still: the upper wing.

Short strikes: The put and the call you sell. The space between them is where an iron condor keeps its full credit at expiration.
Wings: The put and the call you buy further out. They cap the loss on each side and cost part of the credit.
Net credit: The premium received for the two short options minus the premium paid for the two wings. It is the maximum profit.

Iron condor example: max profit, max loss and breakevens

Hypothetical: a stock trades at $100, implied volatility is around 30% and you build a condor with 45 days to expiration. Sell the $90 put for $0.80 and buy the $85 put for $0.25, a $0.55 credit on the put side. Sell the $110 call for $1.20 and buy the $115 call for $0.55, a $0.65 credit on the call side. The total credit is $1.20, or $120 per contract.

At expiration you make money between the breakevens and lose outside them, up to the cap. At $112, for example, the call spread is worth $2.00, so the result is $1.20 − $2.00 = −$0.80, an $80 loss. Because only one side can finish in the money, the maximum loss counts one spread, not both, and many brokers hold only that amount as collateral. The options profit calculator checks any single leg. The formulas, with this example’s numbers:

Max profit = net credit = $1.20 ($120), anywhere from $90 to $110.
Max loss = width of the wider spread − net credit = $5 − $1.20 = $3.80 ($380), at or below $85 or at or above $115.
Lower breakeven = short put strike − credit = $90 − $1.20 = $88.80.
Upper breakeven = short call strike + credit = $110 + $1.20 = $111.20.

A hand-drawn price ribbon at expiration, widened for legibility rather than drawn to scale: max loss below the $85 long put, a losing stretch up to the $88.80 breakeven, a green profit zone from $88.80 to $111.20 with the maximum profit between the short strikes at $90 and $110, then a losing stretch and max loss above the $115 long call. Below it, the four legs (buy put, sell put, sell call, buy call) and today’s price at $100.

How time decay and IV crush work for an iron condor

An iron condor is a short-premium position: you sold more option value than you bought. While the stock stays between the short strikes, time decay (theta) shrinks the value of the short options and the condor gains a little each day, faster in the final weeks. A fall in implied volatility helps too, because it lowers the price of the short options more than that of the wings. The options Greeks guide covers theta and vega.

Before expiration the profit is smaller than the expiration diagram suggests. In a simple pricing model, a week after entry with the stock still at $100 and volatility unchanged, the condor is worth about $1.00, a $20 gain, because most of its time value is still there. If implied volatility instead rose from 30% to 35% right after entry, the same condor would be worth about $1.55, a $35 loss on paper with the stock unchanged.

As expiration nears, gamma grows: a move toward a short strike swings the position much faster in the last days than a month out. That is why short-dated condors, including 0DTE ones, can go from a full gain to a loss within hours.

A hand-drawn time-decay curve: an option’s time value shrinks slowly with weeks to go, then drops fast in the final days before expiration, the decay an iron condor seller collects on the two short options.

Why an iron condor wins small and loses big

The payoff is lopsided by design. In the example the best case is $120 and the worst is $380, so one full loss erases more than three full wins. In return, the trade makes money anywhere from $88.80 to $111.20 at expiration. A condor is built so that the ordinary outcomes, the stock drifting or going nowhere, end in a small gain, while the less common large moves end in a loss several times larger.

That is not a free edge. Option prices already include the market’s estimate of how far the stock might move, and the credit is what you are paid for taking that risk. Moving the short strikes further out widens the range, but the credit shrinks and the potential loss grows relative to it; moving them closer does the opposite. Some traders choose short strikes by delta, as a rough model-based gauge of distance, not as a probability of profit. In practice:

Size by the maximum loss, not by the credit: a condor that risks $380 is a $380 trade.
Expect losses to be expensive: one full loss can take back many small gains.
Treat the bell curve as a model. Real prices gap on news, and large moves show up more often than a smooth bell curve implies.

How to manage an iron condor: closing early and defending a side

Most condor traders do not hold to expiration. Buying the condor back as one order once a set share of the credit has been earned, for example half, gives up the last dollars, which carry the most gamma risk. A time-based exit, closing a set number of days before expiration, does a similar job.

When the stock moves toward one short strike, that side is said to be tested. Every adjustment is a new trade with its own commissions and bid-ask spreads, so judge it on its own risk, not as a way to avoid taking a loss. The common responses:

Close the whole condor and accept the result; often the cleanest choice.
Close only the tested side and keep the other side, which is now cheap to hold and near its full profit.
Roll the untested side closer to the price for more credit. This lowers the maximum loss but narrows the profit zone, and a reversal can test the new short strike.
Roll the tested side out to a later expiration for a credit, which buys time but extends the risk.

Iron condors and earnings: the big-news risk

Before earnings, implied volatility is usually high, so a condor that spans the report collects a bigger credit, and the IV crush afterward shrinks its value quickly. That makes earnings condors tempting. The catch is the gap: the stock can open beyond a short strike, or beyond a long strike, before you can act, and the larger credit is the market’s price for exactly that move. Our implied volatility guide shows how to estimate the expected move and compare it with your strikes.

The same goes for other scheduled news: a drug trial result, a court ruling, or for index ETFs such as SPY and QQQ, inflation data and central bank decisions. Know the calendar for the whole life of the trade. Index options such as SPX are European-style and cash-settled, so they have no early assignment, but the index can gap like anything else; see SPX vs SPY options.

On stock and ETF options, plan for the mechanics too: short legs can be assigned early, most often a short call before an ex-dividend date, and a close near a short strike on expiration day brings pin risk. Our guide to options expiration explains both.

Iron condor vs iron butterfly, and the opposite trade

An iron butterfly is an iron condor whose short put and short call share one strike, usually at the money. With the stock at $100: sell the $100 put and the $100 call, buy the $95 put and the $105 call. It collects a much larger credit than a condor with the same wings, but the full profit comes only if the stock finishes exactly at $100, and the profit zone runs only from $100 minus the credit to $100 plus the credit. The maximum loss is the wing width minus the credit, as in a condor.

The opposite of both is buying volatility. A long straddle or strangle pays when the stock moves far in either direction, the outcome a condor fears. A short strangle, selling a put and a call without the wings, collects more but has unlimited risk above and large risk below; the wings are what make a condor a defined-risk trade.

When an iron condor fails, and who it suits

A condor needs a market that stays in a range. It fails in strong trends and breakouts, when volatility expands, and on gaps. It is also costly to trade: four legs mean four commissions and four bid-ask spreads each way, so wide quotes can eat much of a small credit. Prefer liquid underlyings and strikes, and open and close the condor as one order with a net limit price.

The range view comes from the chart. A stock moving sideways between clear support and resistance is a natural candidate, and placing the short strikes beyond those levels gives the trade its logic; our range trading guide covers how to spot one. UpTickFlow marks levels, entries and stops on the underlying’s chart; it does not read options data or choose strikes. However you build the condor, size it so that the full maximum loss is a cost you have planned for.

Test yourself

4 quick questions on this lesson. Pick an answer to see why.

Question 1 of 4
The drawing shows four payoffs at expiration, profit and loss against the stock price. Which one is an iron condor?
Turn your phone sideways to read the drawing. Tap to close.
Question 2 of 4
Hypothetical: you sell the $95 put and the $115 call, and buy the $90 put and the $120 call, all with the same expiration, for a total credit of $1.50. What is the maximum loss per contract?
Question 3 of 4
Same condor: short $95 put and short $115 call, $1.50 total credit. Where are the breakevens at expiration?
Question 4 of 4
You plan to hold a short iron condor on a stock through its earnings report. What is the main risk?

Questions

Is an iron condor a good strategy for beginners?

It works better as a next step than a first one. The risk is capped, but there are four legs, it needs spread approval and margin, and a full loss is several times a full gain. Learn calls, puts and vertical spreads first, and start small enough that a full loss is easy to absorb.

What happens if the stock moves past one side of an iron condor?

The spread on that side loses value while the other side keeps its gain. Past the breakeven the whole position is losing, and beyond the long strike the loss reaches its maximum: the width of that spread minus the credit. Traders usually close or adjust before that point.

When should you close an iron condor?

There is no single rule. Many traders close once a set share of the credit is earned, such as half, a set number of days before expiration, or when a short strike is tested. Holding to the last day squeezes out the final dollars but adds gamma and pin risk.

How much margin does an iron condor require?

Usually the maximum loss of the wider side: its width minus the credit, times 100 per contract. Many brokers hold only one side, since both cannot lose at expiration, but rules vary, so check yours.

What is the difference between an iron condor and an iron butterfly?

In an iron butterfly the short put and short call share one strike, usually at the money; in an iron condor they sit apart, leaving a flat profit zone between them. The butterfly collects more credit but earns its maximum only if the stock finishes exactly at the middle strike; the condor collects less over a wider range.

UpTickFlow is our product. These guides are education, not financial advice. Trading involves a substantial risk of loss.