Iron Condor: How It Works, Example and Risks
An iron condor sells an out-of-the-money put spread and call spread in the same expiration. Traders use it when they expect price to stay in a range. The main risk is a large move through either side.
At a glance
| Outlook | neutral |
|---|---|
| Level | advanced |
| Max profit | Total credit × 100 |
| Max loss | (Wider wing width − credit) × 100 |
| Breakeven | Short put − credit and short call + credit |
| Greeks exposure | Near-zero delta, positive theta, negative vega |
| Ideal IV environment | High IV |
Payoff diagram
Worked example
Sell the 90/85 put spread and the 110/115 call spread for $1.40 total ($140). Breakevens $88.60 and $111.40. Max loss ($5 − $1.40) × 100 = $360.
How to manage it
- Place short strikes outside the expected move.
- Close at 25–50% of max profit.
- Adjust or close the tested side early.
Risks
- Large moves cause max loss.
- Four legs mean more commissions and spread cost.
- Pin and assignment risk at expiry.
Questions
How does an iron condor make money?
From time decay while price stays between the short strikes.
What's max loss?
Wing width minus credit — $360 here.
Is it beginner friendly?
It has defined risk but many moving parts; learn verticals first.
Related
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