Iron Condor

A short put spread and a short call spread in the same expiration: it opens for a credit and keeps it while the underlying stays between the two short strikes.

Also called Short iron condor, Condor

Outlook

Neutral

Family

Neutral

Level

Intermediate

Legs

4 legs

Expirations

1 expiration

Opens for

Credit

Maximum profit

Limited

Maximum loss

Limited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
B	Short	Put 92.5	1	Delta 16
A	Long	Put 87.5	1	5.00 points further out of the money than B
C	Short	Call 107.5	1	Delta 16
D	Long	Call 112.5	1	5.00 points further out of the money than C

What it is

Four legs in one expiration: a bull put spread below the price and a bear call spread above it. Short strikes at B and C, long wings further out at A and D.

It is a short strangle with both wings bought back. That is the whole difference and it is the important one: the strangle’s unbounded loss becomes a number known before the position is opened.

The payoff

At expiration

A flat-topped shape with both ends flat: the full credit is kept between the short strikes B and C, and the loss is capped beyond the long wings A and D.

Five regions, and the outer two are what distinguish this from a strangle:

• Between B and C — all four legs expire worthless and the full credit is kept.
• Between A and B, or between C and D — one short leg is in the money and its long wing is not. The result slides from the maximum gain toward the maximum loss.
• Below A or above D — both legs of that side are in the money. The spread is worth its full width and the loss stops there.

Maximum loss is the width of the tested side less the credit. With equal wings, only one side can ever be tested, so the risk is one width and not two.

Break-evens are B minus the credit and C plus the credit.

How it behaves before expiration

Today, before expiration

Today's value is a shallow curve with all four corners rounded, well inside the flat regions of the expiration line.

All four corners are rounded and the whole curve is far flatter than the expiration line. An iron condor reaches neither its full credit nor its full loss until close to expiry: four legs’ time values largely offset one another, and what remains moves slowly.

That flatness is the practical character of the structure. It rarely does much on any given day, in either direction.

The Greeks

Delta is near zero when the position is centred, and turns against it as either short strike is approached.

Gamma is negative around B and C and positive around A and D — the wings are what stop the acceleration.

Theta is positive and modest: income accrues on the two short legs and is partly spent on the two long ones.

Vega is negative and small. A rise in implied volatility hurts, but far less than it hurts an unhedged strangle, because all four legs reprice together.

Where it lives in the volatility environment

Practitioners describe the iron condor as selling a range with a known worst case, and generally observe that the credit for a given pair of widths is larger when implied volatility is high. The maximum loss is fixed by the widths, not by the environment: a wider wing is a bigger risk for a bigger credit.

What can go wrong

• The credit is small against the width. A 5-wide condor for a 1.00 credit risks 4.00 to make 1.00, and the shape of that trade is the thing to understand before the probabilities.
• Only one side can lose, but either can. A move through B or through C produces the same maximum loss.
• Early assignment on a short leg leaves shares against a three-legged remainder.
• Four legs, four spreads. Opening and closing crosses eight markets, and the outer wings are usually the least liquid strikes in the structure.
• Closing one side is not closing the position. A condor with its call spread bought back is a bull put spread, with that structure’s risk.

Building it in Option Panel

Open Build Strategy and pick Iron Condor. The two short strikes are chosen by delta, percentage or points from the price, offset or exactly; each long wing is usually expressed as an offset from its short leg, which is what fixes the width and therefore the maximum loss.

Selecting by spread credit searches over a pair at a given width for the short strike whose spread pays closest to the credit asked for.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Short Strangle — the same view without the wings: more credit, no bound on the loss.
• Iron Butterfly — the same four-leg idea with both short strikes at the same place.
• Inverse Iron Condor — the other side of this structure.