The iron condor is one of the most popular options strategies for range-bound markets. It combines two credit spreads — one on the put side, one on the call side — so you collect premium if the price stays between two levels, while your maximum loss is capped.
The structure
An iron condor has four legs with the same expiry:
- Buy a far OTM put (protection).
- Sell a closer OTM put.
- Sell a closer OTM call.
- Buy a far OTM call (protection).
Example with an index at 25,000 and strikes 100 apart:
- Buy 24,600 put
- Sell 24,800 put
- Sell 25,200 call
- Buy 25,400 call
You receive a net credit because the options you sell are more expensive than the ones you buy.
Payoff at expiry
- Maximum profit = net credit — if the price expires between the short strikes (24,800–25,200).
- Maximum loss = width of one spread − net credit — if the price expires beyond a long strike.
- Breakevens = short put − credit, and short call + credit.
Open the iron condor in our options strategy builder to see the exact payoff, breakevens, maximum profit and loss, an estimated probability of profit and the position Greeks. Change the spot, strikes and premiums to model your own trade.
When the iron condor works
- The market is range-bound or quietly trending.
- Implied volatility is relatively high, so premiums are rich, and you expect it to fall.
- There are no major events (results, policy announcements, budgets) before expiry that could cause large moves.
When it struggles
- Strong trending moves or gaps through a short strike.
- Rising volatility.
- Event surprises.
Choosing strikes
- Short strikes: often placed outside recent support and resistance, or at a delta around 0.15–0.30.
- Wings (spread width): wider wings collect more credit but increase maximum loss; narrower wings reduce both.
- Expiry: shorter expiries decay faster but carry more gamma risk; longer ones are calmer but slower.
Position Greeks
An iron condor typically has:
- positive theta — earns from time decay,
- negative vega — hurt by rising volatility,
- near-zero delta at entry — directionally neutral,
- negative gamma — risk grows quickly if price moves toward a short strike, especially near expiry.
Read option Greeks explained.
Managing the trade
- Profit target: many traders close at 50–70% of maximum profit rather than holding to expiry.
- Loss limit: exit if the loss reaches a predefined multiple of the credit, or if price breaks through a short strike.
- Adjustments: roll the untested side closer to collect more credit, or close the threatened side. Adjustments add complexity — keep them rule-based.
- Avoid expiry-day surprises: close or reduce positions before high-gamma periods if you are not experienced.
Sizing an iron condor
Size by maximum loss, not by margin. If maximum loss per set is ₹10,000 and you risk ₹4,000 per trade, the trade is too big for your account — choose narrower wings or skip.
Related strategies
- Iron butterfly: short strikes at the same ATM strike — higher credit, narrower profit zone.
- Short strangle: an iron condor without the protective wings — unlimited risk, higher margin.
Key takeaways
- An iron condor sells an OTM put spread and an OTM call spread for a net credit.
- It profits in ranges and from falling volatility, with risk capped on both sides.
- Choose strikes outside key levels and size by maximum loss.
- Manage with profit targets, loss limits and caution near expiry.
Frequently asked questions
Is the iron condor a safe strategy?
It has defined risk, which makes it safer than naked selling, but it can still lose its maximum amount in strong moves.
What is the best market for an iron condor?
A range-bound market with relatively high implied volatility and no major events before expiry.
Should I hold an iron condor until expiry?
Many traders close early at 50–70% of maximum profit to reduce gamma risk near expiry.
How do I calculate iron condor breakevens?
Lower breakeven = short put strike − net credit; upper breakeven = short call strike + net credit. The options strategy builder calculates them automatically.
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