Iron condor strategy explained: sell a put spread and a call spread, keep the credit if the stock stays in range. SPY example with Greeks and adjustments.
Summary: An iron condor combines a bull put spread below the stock price with a bear call spread above it, all four options with the same expiration. You receive a net credit up front and keep all of it if the stock finishes between the two short strikes. The long options on the outside cap the loss on either side. It's a defined-risk, market-neutral strategy for a stock or ETF you expect to stay in a range, usually set up with 30–45 days to expiration and short strikes around delta 0.15 on each side.
Last updated: 2026-10-17.
What Is an Iron Condor?
An iron condor is a four-leg options position that collects premium on both sides of the current price. Below the stock you sell a put and buy a lower-strike put; above it you sell a call and buy a higher-strike call. All four options share one expiration. The two options you sell bring in more than the two you buy cost, so it's a credit strategy: the cash lands in your account the day you open it.
The position doesn't need the stock to move. It needs the stock to not move too much. Between the two short strikes is your profit zone; if the stock finishes anywhere inside it, all four options expire with no net value and you keep the whole credit. Outside the zone, losses start, and past the long strikes they stop growing.
If you've read about the bull put spread and the bear call spread, you already know both halves. An iron condor is simply the two opened together on the same underlying. The name comes from the payoff diagram: a flat body in the middle and two wings hanging down on the sides.
This sounds complicated, but here's the simple version: you're getting paid for the claim "this stock stays between X and Y for the next six weeks," and you've bought insurance on both sides in case you're wrong.
The Highway Lane Analogy
Stay in the lane and keep the credit; the guardrails cap the loss.
Think of driving in a highway lane. As long as you stay between the lane lines, everything is fine — that's the profit zone, and staying in it is all the trade asks of you. Drift over a line, and things start going wrong: that's the stock crossing a short strike. Keep drifting, and you hit the guardrail. It hurts, but it stops you from going off the road. The guardrails are the long options you bought: they cap how bad it can get.
The analogy has one honest catch. A careful driver almost never leaves the lane. A stock crosses one of your short strikes far more often — in this example, the model puts the chance of finishing outside the profit zone at about three in ten. The guardrail isn't there for a freak accident; it's there because you will hit it from time to time.
Key Facts
- An iron condor sells a put spread below the price and a call spread above it, with one expiration; the total net credit is the maximum gain.
- Maximum loss = (width of one side − total credit) × 100: here ($10 − $2.53) × 100 = $747 per iron condor. Only one side can lose at expiration.
- Two break-evens: short put − credit and short call + credit — $712.47 and $817.53 in the SPY example, a range from 6.25% below to 7.57% above $760.
- In the example, the model gives about a 72% chance that SPY finishes between the break-evens, and about a 21% chance of the full maximum loss.
- The same short strikes without the wings (a short strangle) would collect $746 but lose about $2,754 if SPY ended at $680 or $850; the iron condor's loss stops at $747.
- Theta works for you: at entry the position earns about $5.19 a day if SPY stays put; vega works against you: each 1-point rise in implied volatility costs about $26.
- If SPY sits still, the iron condor reaches 50% of its maximum gain with about 24 days left in this example.
How an Iron Condor Is Constructed
The setup has four legs, normally opened as one order:
- Buy one put far below the price — the lower wing that caps the downside.
- Sell one put above it — the lower edge of the profit zone.
- Sell one call above the price — the upper edge of the profit zone.
- Buy one call further above — the upper wing that caps the upside.
An iron condor is a bull put spread and a bear call spread opened together.
Legs 1–2 are a bull put spread; legs 3–4 are a bear call spread. The formulas:
Total credit = put spread credit + call spread creditMax gain = total credit × 100 (stock between the short strikes at expiration)Max loss = (wing width − total credit) × 100 (stock beyond either long strike)Lower break-even = short put strike − total creditUpper break-even = short call strike + total credit
Here's a detail that makes the iron condor efficient: the stock can't finish below the puts and above the calls at the same time. So the risk is the width of one side, not both, and many brokers hold only that one width as collateral while giving you credit from both sides. See margin and buying power for options for how brokers handle multi-leg positions.
Iron Condor Example: SPY
The SPDR S&P 500 ETF (SPY) closed at about $763 on October 16, 2026, according to the SPY quote on StockAnalysis. The example below uses an illustrative scenario with SPY at $760. The numbers are for learning the mechanics, not a recommendation to trade SPY.
SPY has no earnings, which is one reason iron condor traders like it, but it does have event risk. A 45-day position opened now spans the Federal Reserve meeting on October 27–28, 2026 and the U.S. midterm elections on November 3. Either can move the whole market in a day. This example knowingly holds through both and treats them as risks already reflected in the assumed implied volatility of 18%, with a 4% interest rate and SPY's dividend yield of about 1%. In practice, many traders wait until a big event has passed, or open a smaller position.
Your view is neutral: you expect SPY to drift but stay roughly within 6–7% of its current price over the next 45 days. You open this iron condor:
| Leg | Option | Delta | Price |
|---|
| Buy | 1 SPY $705 put | −0.10 | $2.35 |
| Sell | 1 SPY $715 put | −0.15 | $3.69 |
| Sell | 1 SPY $815 call | +0.16 | $3.77 |
| Buy | 1 SPY $825 call | +0.11 | $2.58 |
| Parameter | Value |
|---|
| Price (illustrative) | $760 |
| Days to expiration | 45 |
| Implied volatility (assumed) | 18% |
| Put spread credit | $1.34 |
| Call spread credit | $1.19 |
| Total credit (max gain) | $2.53 per share = $253 per iron condor |
| Max loss | $7.47 per share = $747 per iron condor |
| Break-evens at expiration | $712.47 and $817.53 |
| Profit zone (short strikes) | $715 to $815 |
| Risk-to-reward | 2.95 : 1 |
The last line is the price of the high success rate. You risk $747 to make $253. That only makes sense because the model gives SPY about a 72% chance of finishing between the break-evens — a model estimate under the assumed volatility, not a real-world frequency. The flip side is just as important: the same model gives about a 21% chance that SPY ends beyond one of the long strikes, which means the full $747 loss.
One more simplification to know about: the example uses one implied volatility for every strike. In real markets, out-of-the-money puts on indexes usually trade at higher implied volatility than calls, so the put side of a real iron condor typically pays more than the call side.
{{LIVE_DATA:iron_condor:SPY}}
The live widget above shows current SPY data, which will differ from the fixed numbers in this example. Use the example for the logic, then apply the same formulas to live prices.
Iron Condor Payoff Diagram
The payoff diagram shows the result at expiration. Between $715 and $815, every option expires worthless and you keep $253. Between the short and long strikes on either side, each $1 SPY moves further out costs $100. Beyond $705 or $825, the loss is fixed at $747.
Iron condor payoff at expiration: a flat gain inside the range and a capped loss on both sides.
| SPY at expiration | Iron condor P/L | What happens |
|---|
| $680 | −$747 | Maximum loss; the $705 put absorbs everything below |
| $712.47 | $0 | Lower break-even |
| $715 to $815 | +$253 | All four options expire; you keep the credit |
| $817.53 | $0 | Upper break-even |
| $850 | −$747 | Maximum loss; the $825 call absorbs everything above |
Compare that with a short strangle — selling the same $715 put and $815 call without buying the wings. It would collect $7.46, or $746, nearly three times as much. But at $680 or $850 it would be down about $2,754, and the loss would keep growing with every further dollar. The wings cost $493 of potential premium; what they buy is a worst case you know on day one.
Where to Put the Strikes: the Expected Move
A useful yardstick for strike placement is the expected move — the one-standard-deviation range the options market implies. The formula is price × IV × √(days ÷ 365). For SPY at $760 with 18% IV and 45 days, that's $760 × 0.18 × √(45/365) ≈ $48, so the one-standard-deviation range runs from about $712 to $808. In a normal distribution, a price ends inside one standard deviation about 68% of the time.
The short strikes sit at the edge of the one-standard-deviation expected move.
The short strikes in the example sit right at the edge of that range: $715 is $3 inside the lower bound — a deliberate compromise to keep the total credit near one-quarter of the wing width — and $815 is $7 above the upper one. That's what a short strike near delta 0.15 means in practice. Move the shorts closer to the price and you collect more, but the stock leaves the profit zone more often. Move them further out and the profit zone widens, but the credit shrinks while the loss per side stays close to the full wing width.
A practical rule: put the short strikes at or just outside the edge of the expected move, and ideally beyond a level where the stock has turned before — support below, resistance above. For more on how volatility drives this range, see implied volatility explained.
How the Greeks Affect an Iron Condor
Because you sold both spreads, the iron condor is short volatility and long time. The table shows the net values per share; the right-hand column translates them into dollars per iron condor. (Background in the option Greeks explained.)
| Greek | Net value (per share) | What it means for you |
|---|
| Delta (Δ) | +0.004 | About $0.35 per $1 SPY moves — practically neutral at entry |
| Gamma (Γ) | −0.002 | Negative: a move in either direction pushes delta against you, and losses speed up near the short strikes |
| Theta (Θ) | +0.052 | Time decay earns about $5.19 per day at entry, all else equal |
| Vega (ν) | −0.262 | Each 1-point rise in implied volatility costs about $26; each 1-point drop earns about $26 |
Theta is the engine. If SPY sits at $760, the iron condor is worth about $1.97 with 35 days left (a gain of about $56), about $0.97 with 21 days left (a gain of about $156), and reaches the 50% target with roughly 24 days left. Unlike a single credit spread, an iron condor collects decay from two short options, so a quiet market works for both halves of the position.
Vega is the hidden risk. If implied volatility drops from 18% to 14% right after entry, the position shows a gain of about $109 before a single day has passed. If it jumps to 22% — as it often does in a sell-off — the position shows a loss of about $97, and at 26%, about $176, even if SPY hasn't reached either short strike. That's why the entry rule says to sell when implied volatility is high: you want it to fall, not rise.
When to Use an Iron Condor
- You expect a range, not a direction. The stock has been moving sideways, and you don't see a catalyst to push it out of its range.
- Implied volatility is elevated. An IV rank above about 50% means today's IV is high compared with its own past-year range, so the credit is richer and more likely to shrink.
- No big scheduled events. No earnings for a single stock; no major central-bank decision you aren't prepared for on an index.
- The expected move roughly fits inside your short strikes. If the market's own one-standard-deviation range reaches well past your strikes, the setup is too tight.
When NOT to Use an Iron Condor
- Right before earnings or another binary event. A gap can carry the price through both strikes of one side overnight, straight to the maximum loss.
- When implied volatility is low. At 14% IV, the same strikes would pay noticeably less, and a later rise in volatility works against you.
- When the stock is trending hard. A strong trend tests one side early and leaves you managing the position for most of its life.
- When you'd be tempted to hold a losing side "because the other side is fine." The other side can earn at most its own credit — $134 on the put side here — while the tested side can lose up to $747 net.
Iron Condor Entry Criteria and Exit Rules
Entry Criteria: When to Open an Iron Condor
- Neutral, range-bound view on the underlying.
- IV rank above about 50%: premiums are rich relative to the underlying's own history.
- No major event you aren't prepared to hold through.
- 30–45 days to expiration: enough premium to collect, with time decay about to accelerate.
- Short strikes near delta 0.15 on each side, outside the expected move.
- Total credit about one-quarter of the wing width or more ($2.53 on a $10 wing is 25.3%).
- Size by the maximum loss, not by the credit.
Exit Rules: Managing an Iron Condor
When to open an iron condor and how to manage it.
- Buy back at 50% of the credit. When the whole position can be closed for about $1.26, close it and keep about $127. In the example, that happens with roughly 24 days left if SPY stays at $760.
- Act when one side is tested. A common trigger is the short option's delta passing 0.30. Your choices are below.
- Close by 21 days to expiration if neither the target nor the trigger has fired. Gamma grows quickly in the final three weeks, and a 3–4% move can then swing the position from a gain to a large loss within days.
- Close at or near the maximum loss. If SPY is at $840 with five days left, the position costs about $8.72 to close — a loss of about $619. Only about $128 of further loss is left before the maximum, while getting back to break-even would need SPY to fall more than $22 in five days. Closing frees the capital for a better setup.
- Close all four legs together at the end. Leaving a short option open without its wing removes the cap on the loss.
Adjusting a Tested Side
Say SPY rallies to $795 with 25 days left. The short $815 call now has a delta of about 0.32, past the 0.30 trigger. The whole iron condor costs about $2.70 to close, so you're down only about $17 so far — but the risk has shifted to the call side. Three standard responses:
- Close the whole position. Take the small loss of about $17 and look for a new setup.
- Close the tested side, keep the other. Buying back the call spread costs about $2.62, a loss of about $143 on that side. The put spread is now worth about $0.08, so most of its $134 credit is already earned; you can let it run or close it for a few dollars.
- Roll the untested side closer. Close the $715/$705 put spread for about $0.08 and sell a $755/$745 put spread with the same expiration for about $1.05. That brings in about $97 more, raising the total credit to $3.50 and lowering the maximum loss to $650. The price: your profit zone shrinks to $755–$815, and the lower break-even moves up to $751.50.
Rolling the tested call spread up and out — to a 45-day $840/$850 call spread — is a fourth choice, but in this example it costs a net debit of about $88. Rolling buys room, not a refund, and doing it repeatedly means paying to keep a thesis alive that the market has already questioned. Rolling the untested side all the way to the short call's strike turns the position into an iron butterfly, which collects more but needs the price to stay near one point.
💡 Pro Tip: In a real brokerage account, a short option can be assigned early when it's deep in the money with almost no time value left. If that happens, you'll hold a stock position plus the remaining options; closing everything restores the defined loss. Early assignment is rare while the short options still have time value, with one notable exception: a short SPY call that's in the money can be assigned the day before an ex-dividend date. That's one more reason to manage a tested side early rather than wait. See what happens at options expiration for how assignment works.
Common Iron Condor Mistakes
- Sizing by the credit. Ten iron condors look like $2,530 of premium. They're also $7,470 of risk. Size by the second number.
- Squeezing the profit zone for a bigger credit. Short strikes inside the expected move pay more, but the price leaves the zone much more often.
- Forgetting the event calendar. A central-bank decision, an election, or earnings can move the price more in a day than it moved in the previous month.
- Treating the credit as income. $253 on $747 of risk in 45 days is about a 34% return on risk — if nothing goes wrong. Under the model's own assumptions, something goes wrong about three times in ten, and a full loss erases roughly three credits. Income isn't assured.
- Ignoring transaction costs. Four legs mean four commissions and four bid-ask spreads at a real broker, both to open and to close.
- Holding to expiration for the last few dollars. With a few days left, the remaining credit is small, while a sharp move can still take the position to its maximum loss.
⚠️ Warning: An iron condor has a high model probability of a small gain and a lower probability of a much larger loss. Over many trades, the losses are expected — the strategy works only if each loss is kept to its defined size and positions are sized so that a run of losses is survivable.
How to Practice Iron Condors Without Real Money
Pilots practice approaches in a flight simulator until the checklist is automatic, because in a real cockpit there's no time to think it through. Iron condors reward the same habit. The hard decisions — closing at 50% while the position still looks good, and acting the day a side is tested — are easy on paper and much harder when they're happening to you.
In the simulator, you can build an iron condor straight from the option chain: buy the two wings first, then sell the inner put and call with the same expiration, using the chain's delta column to place the short strikes. Because each wing is already in place, the simulator treats each side as a credit spread and reserves the spread width instead of the full cash a lone short put would lock. The "Strategies" tab also has a Short Iron Condor template that shows the required capital, maximum profit and loss, break-evens, and Greeks before you trade. Generate charts in the Random scenario and count how often a side gets tested; then try the Bull Market scenario to practice managing a tested call side, and the Sideways scenario to practice taking the 50% early. Each run is a synthetic chart that has never existed, so you're practicing decisions, not memorizing history.
FAQ
What is an iron condor?
An iron condor is an options strategy that combines a bull put spread and a bear call spread on the same underlying and expiration. You receive a net credit and keep it in full if the stock finishes between the two short strikes. The two long options cap the loss on each side at the wing width minus the credit.
How do you calculate the break-evens of an iron condor?
Subtract the total credit from the short put strike for the lower break-even, and add it to the short call strike for the upper one. In the SPY example, $715 − $2.53 = $712.47 and $815 + $2.53 = $817.53. Between those prices at expiration the position shows a gain; outside them, a loss up to $747.
What is the probability of profit on an iron condor?
It depends on how far the short strikes sit from the price and on implied volatility. Short strikes near delta 0.15 on each side typically give a model probability of profit around 70%, as in the SPY example. The trade-off is that the maximum loss is usually about three times the credit.
When should you adjust an iron condor?
A common trigger is when the short option on one side reaches a delta of about 0.30. You can then close the whole position, close only the tested side, or roll the untested side closer for extra credit. Rolling adds credit that cushions the tested side, but it narrows the profit zone, so a sharp reversal can now hurt the side you rolled.
Is an iron condor better than a short strangle?
Neither is better in every case. A short strangle collects more premium — $746 versus $253 in the example — but its loss keeps growing beyond the short strikes. An iron condor collects less but caps the loss on both sides, which makes position sizing and survival through a large move much easier.
Related: Bull Put Spread Strategy, Bear Call Spread Strategy, Iron Butterfly Strategy, Implied Volatility Explained, Option Greeks Explained, Margin and Buying Power.
About the author: Miroslav Slavkovský is the founder of OptionsSimulator and a software developer focused on derivatives-pricing models. He built the platform's simulation engine — implementing Heston, SABR, GARCH, and Monte Carlo methods — so traders can practise options strategies on generated market scenarios rather than on historical charts.
Practice Iron Condors on a Synthetic Chart
Want to find out whether you'd really close at 50% — and really act when a side is tested — without risking real money? Open the simulator, build an iron condor from the option chain, and manage it with the rules above on a synthetic chart that has never existed.
Open Simulator
Frequently asked questions
What is an iron condor?
An iron condor is an options strategy that combines a bull put spread and a bear call spread on the same underlying and expiration. You receive a net credit and keep it in full if the stock finishes between the two short strikes. The two long options cap the loss on each side at the wing width minus the credit.
How do you calculate the break-evens of an iron condor?
Subtract the total credit from the short put strike for the lower break-even, and add it to the short call strike for the upper one. In the SPY example, $715 − $2.53 = $712.47 and $815 + $2.53 = $817.53. Between those prices at expiration the position shows a gain; outside them, a loss up to $747.
What is the probability of profit on an iron condor?
It depends on how far the short strikes sit from the price and on implied volatility. Short strikes near delta 0.15 on each side typically give a model probability of profit around 70%, as in the SPY example. The trade-off is that the maximum loss is usually about three times the credit.
When should you adjust an iron condor?
A common trigger is when the short option on one side reaches a delta of about 0.30. You can then close the whole position, close only the tested side, or roll the untested side closer for extra credit. Rolling adds credit that cushions the tested side, but it narrows the profit zone, so a sharp reversal can now hurt the side you rolled.
Is an iron condor better than a short strangle?
Neither is better in every case. A short strangle collects more premium — $746 versus $253 in the example — but its loss keeps growing beyond the short strikes. An iron condor collects less but caps the loss on both sides, which makes position sizing and survival through a large move much easier.