Iron Condors: Getting Paid for a Range
Two credit spreads facing each other. Drag each wing and watch the tent reshape.
Worth reading first: Bull Put Spreads: A CSP That Costs Less, Bear Call Spreads: Selling the Upside
Course contents73 lessons · 28 questions
An iron condor is two credit spreads facing each other: a bull put spread below the market and a bear call spread above it. You collect both credits and keep them if the stock finishes anywhere between your short strikes.
It is the purest expression of the most common thing markets do, which is not very much.
Four legs, one profit tent
Move each short strike and the wing width independently. The flat top is the range you get paid for; both wings cap the loss on their side.
distance to each long leg
The flat top between $92.00 and $108.00 is the profit tent: anywhere in that band at expiration pays the full credit. Both wings cap the loss — this position cannot lose more than the width less the credit, no matter what happens.
Reading the four legs
From the bottom of the chain upward: a long put (the lower wing), a short put, a short call, and a long call (the upper wing). The two short strikes define the profit range; the two long strikes define how much you can lose.
Max profit = total credit · Max loss = wing width − total creditAssuming both wings are the same width — the standard construction.
There are two breakevens, one on each side, sitting outside the short strikes by the credit received. Between them you make money; beyond them you lose, up to the capped maximum.
What you are actually betting on
Not direction. An iron condor is a bet that realised movement will be smaller than the implied movement priced into the options — that the stock stays inside a range the market thought it might leave.
That makes it a short-volatility position in the most direct sense available. The vega is meaningfully negative, and a market-wide volatility spike marks it against you even before the stock moves anywhere.
| Stock at expiration | Put side | Call side | Result |
|---|---|---|---|
| $85 | Max loss | Expires | −$310 |
| $90.10 | Breakeven | Expires | $0 |
| $100 | Expires | Expires | +$190 |
| $107 | Expires | Expires | +$190 |
| $115 | Expires | Max loss | −$310 |
Stock at $100. Short $92 put / long $87, short $108 call / long $113. Total credit $190.
Note how wide the winning band is — anywhere from $90.10 to $109.90 pays something, and the whole range between $92 and $108 pays the maximum. Probability of profit on a structure like this is routinely 70-80%.
The catch, stated plainly
A 75% win rate with a maximum loss of $310 against a maximum profit of $190 is not automatically profitable. Run the arithmetic: win three times, lose once, and you are up $570 − $310 = $260 across four trades. Positive, but thin — and it evaporates entirely if your win rate drifts to 65%, or if commissions on eight legs per round trip take their cut.
This is the probability versus expected value lesson made concrete. Iron condors have the highest win rates and some of the least forgiving payoff ratios in retail options. The two facts are the same fact.
Setting the strikes
Short strikes. Usually chosen by delta — 0.15 to 0.20 on each side is conventional, giving roughly a 70% chance of staying inside. Move them closer for more credit and a narrower range.
Wing width. This sets the maximum loss and the capital. Wider wings collect marginally more credit and risk considerably more.
Duration. Thirty to forty-five days is standard, for the same theta reasons as any premium sale. Shorter dramatically raises gamma, and a four-legged position with high gamma is genuinely unpleasant to manage.
When to open. Elevated IV rank matters more here than almost anywhere else, because you are explicitly selling volatility. Opening a condor in a quiet, low-IV market collects little for a real risk.
Managing four legs
Take profits early. A condor at 50% of maximum profit has usually captured the easy part; holding for the rest means carrying rising gamma on both sides for a shrinking reward.
When one side is threatened, the standard responses are to close the whole position, to roll the threatened spread further out, or to close the untested side and take what it collected. Each has a case. What does not have a case is adding contracts to a losing condor to “average in” — that converts a defined-risk position into a larger defined-risk position on the same losing thesis.
What can go wrong
Commissions. Eight legs per round trip. On a $190 credit that is a real percentage, and it is why condors need liquid underlyings.
Trading them on individual stocks with earnings inside. A condor is a bet against large moves; an earnings print is a scheduled large move.
Reading the win rate as the whole story. The loss is larger than the win by design.
Pin risk at expiration. Four legs near the money on expiration day is the most complicated position in this course to unwind. Close early.
Key takeaways
- An iron condor is a bull put spread and a bear call spread on the same underlying and expiration.
- It pays the full credit anywhere between the short strikes, and only one side can ever lose.
- It bets that realised movement will be smaller than implied — a direct short-volatility position.
- High win rates come with a maximum loss larger than the maximum profit. Those are the same fact, not two.
- Eight legs of commission per round trip means it needs a liquid underlying to make sense at all.
Check your understanding
1. Your iron condor has $5 wings and collected $190 in total credit. What is the maximum loss?
2. An iron condor wins 75% of the time, making $190 and losing $310. Is it profitable?
3. Why is the capital required equal to one wing's width rather than both?