Iron Condor Strategy: Complete Guide with Examples
The iron condor is a market-neutral, defined-risk options strategy that combines a bull put spread and a bear call spread. You collect premium up front and profit if the underlying stays in a range through expiration. It's the go-to strategy for premium sellers who want a high probability of profit with a strictly capped downside.
What is an iron condor?
An iron condor is four options on the same underlying and same expiration, working as two vertical spreads at once:
- Sell an out-of-the-money put and buy a further OTM put — a bull put credit spread below the price.
- Sell an OTM call and buy a further OTM call — a bear call credit spread above the price.
The two short strikes define your profit zone; the two long strikes cap your risk. You open the whole structure for a net credit, and that credit is the most you can make. Because the stock can only breach one side at expiration, your capital at risk is just one spread's width minus the credit.
Iron condor example
Suppose SPY is trading at $500 and you expect it to stay range-bound for the next 30 days.
- Sell the $480 put / buy the $475 put (put spread, $5 wide).
- Sell the $520 call / buy the $525 call (call spread, $5 wide).
- Net credit collected: $1.50 ($150 per condor).
- Profit zone: SPY anywhere between $480 and $520 at expiration → keep the full $150.
- Breakevens: $478.50 (lower) and $521.50 (upper) — the short strikes ± the credit.
- Max loss: ($5 − $1.50) × 100 = $350, if SPY closes beyond $475 or $525.
You risk $350 to make $150 with roughly an 80% probability of the stock staying in range — the classic iron condor risk/reward. The edge comes from time decay and from implied volatility falling after entry.
Strike and delta selection
The short strikes control your win rate and credit; the long strikes control your max loss:
- Short strikes: most traders sell around 0.15–0.20 delta on each side (≈80–85% probability OTM). Lower delta = higher win rate, smaller credit.
- Wing width: wider wings ($10 vs $5) collect more credit but risk more capital. Narrow wings cap risk tightly.
- Days to expiration: 30–45 DTE is the sweet spot for balancing theta decay against gamma risk.
- IV rank: enter when implied volatility is elevated (high IV rank) so you sell richer premium and benefit from IV mean-reversion.
When to use an iron condor
Good fit:
- Range-bound, low-trend markets where you expect chop rather than a big move
- Liquid index ETFs — SPY, QQQ, IWM — or the SPX index, with tight spreads and deep chains
- Elevated implied volatility that you expect to contract
- Defined-risk income in an IRA or a smaller account
Poor fit:
- Strong trending markets or a stock with a clear directional catalyst
- Single stocks right before earnings (unless you specifically want the IV-crush trade)
- Illiquid names with wide bid/ask spreads that eat your credit on entry and exit
Managing and adjusting the trade
- Take profit early: close at ~50% of max profit instead of holding to expiration to cut gamma risk.
- Defend the tested side: if one short strike is breached, roll that spread further out or out in time for a credit.
- Set a stop: many traders exit at roughly 1.5–2× the credit received.
- Avoid expiration week: pin risk and assignment risk spike in the final days.
Want to see how iron condors would have performed across different market regimes? Test the range-bound thesis on 30+ years of real SPY and SPX data with the options backtester.
Related strategies & tools
Iron Condor FAQ
What is an iron condor options strategy?
An iron condor is a market-neutral, defined-risk strategy built from four options on the same underlying and expiration: sell an out-of-the-money put and buy a further OTM put (a bull put spread), and sell an OTM call and buy a further OTM call (a bear call spread). You collect net premium up front and keep the maximum profit if the stock finishes between the two short strikes at expiration.
How does an iron condor make money?
You are selling volatility and time. The trade opens for a net credit. As long as the underlying stays between your short call and short put strikes, both spreads decay and you keep the credit. Your profit comes from theta (time decay) and, often, from implied volatility falling after you enter. It is a bet that the stock will stay range-bound rather than make a large move in either direction.
What is the max profit and max loss on an iron condor?
Max profit = the net credit received (realized if the stock finishes between the short strikes). Max loss = the width of the wider spread minus the net credit, multiplied by 100. Example: $5-wide spreads for a $1.50 credit means max profit $150 per condor and max loss ($5 − $1.50) × 100 = $350. Because both sides can't be breached at once, you're only ever exposed to one spread's loss.
What delta should I use for an iron condor?
A common approach is to sell the short strikes around 0.15–0.20 delta (roughly an 80–85% probability of expiring out of the money on each side) and buy the long strikes 1–2 strikes further out to define risk. Lower delta (0.10) means a higher win rate but smaller credit; higher delta (0.30) means bigger credit but more frequent losers. Match the delta to how much range you expect.
When should I close an iron condor?
A widely used rule is to close at 50% of max profit rather than holding to expiration — it locks in gains and sharply reduces gamma risk in the final week. Many traders also set a stop at roughly 1.5–2× the credit received, or close/roll the tested side when the short strike is breached. Avoid holding a full iron condor into expiration week unless you're comfortable with pin risk.
Iron condor vs credit spread — which is better?
A credit spread is one side of an iron condor (just the put spread or just the call spread). A single credit spread has directional bias and collects less premium; an iron condor is neutral and collects premium from both sides for the same margin on the wider wing. Use a credit spread when you have a directional lean; use an iron condor when you expect the stock to stay in a range.
What are the best stocks and ETFs for iron condors?
Liquid, index-like underlyings with tight bid/ask spreads and high options volume are ideal — SPY, SPX, QQQ, and IWM are the classic choices because they are diversified (less single-stock gap risk) and have deep weekly and monthly chains. Elevated implied volatility (a high IV rank) improves the credit you collect. Avoid iron condors on single names right before earnings unless you specifically want the IV-crush play.
Can you trade iron condors in an IRA?
Yes. Because the iron condor is fully defined-risk, it is one of the more IRA-friendly options strategies and typically requires only Level 3 (defined-risk spreads) approval. The margin requirement equals the max loss, which most IRA custodians allow.
Backtest an iron condor before you trade it
Simulate range-bound premium-selling strategies on 30+ years of real SPY and SPX data — free.
Launch the Backtester →