Iron Condor Spread

The Iron Condor Spread is a popular options strategy used by traders with a neutral outlook. It consists of selling an out-of-the-money put spread and an out-of-the-money call spread—forming a “condor” with iron-clad wings for defined profit and loss. The strategy profits when the underlying asset remains within a specified range, making it ideal for rangebound markets.

Structure

• Sell 1 Put at Strike A (lower short put)
• Buy 1 Put at Strike B (lower long put, further out-of-the-money)
• Sell 1 Call at Strike C (upper short call)
• Buy 1 Call at Strike D (upper long call, further out-of-the-money)

All options share the same expiration date. Strike spacing and premiums define your exposure.

Profit & Loss Profile

• Maximum Profit: Net premium received; occurs when underlying settles between Strike A and Strike C
• Maximum Risk: Difference between strike widths minus net premium received
• Breakeven Points:
  • Lower Breakeven = Strike A - Net Premium
  • Upper Breakeven = Strike C + Net Premium
• Payoff Shape: Flat profit zone between short strikes, capped losses beyond outer strikes

Example

Suppose a stock is trading at $100. A trader constructs the following Iron Condor:

• Sell 1 x $95 Put
• Buy 1 x $90 Put
• Sell 1 x $105 Call
• Buy 1 x $110 Call

If the stock closes between $95 and $105 at expiration, all options expire worthless, and the trader keeps the full net credit. Movement outside this range triggers defined losses.

Ideal Market Conditions

• Outlook: Neutral to slightly directional
• Volatility: Best used in high implied volatility environments (to collect more premium)
• Time Horizon: Short to medium term
• Expectations: Underlying remains within short strike range through expiration

Risk Considerations

• Assignment risk if short options go in-the-money near expiration
• Needs margin due to simultaneous short put and call positions
• Gamma risk increases near expiration or during sharp moves
• Best managed actively if market begins trending or becomes volatile

Summary

The Iron Condor Spread is ideal for income generation when price movement is expected to be limited. Its defined risk and reward make it suitable for disciplined traders targeting high-probability outcomes, especially in high-IV setups.