When Should You Use This Strategy?
The stock has been trading in a well-defined range and you expect that range to hold through expiration, and you want a position with a known, capped maximum loss rather than the undefined risk of a naked strangle. It works best in lower-volatility environments where a big surprise move is less likely.
Who Benefits Most?
Income-focused traders who want to collect time decay from four option legs without taking on unlimited risk, and who are comfortable managing a position with more moving parts than a simple spread. It suits traders who can monitor the position regularly rather than set it and forget it, since four legs mean more to track if the stock moves.
Position Setup
The Iron Condor consists of the following legs:
- Buy 1 85 strike put at $1 premium
- Sell 1 95 strike put at $3 premium
- Sell 1 105 strike call at $3 premium
- Buy 1 115 strike call at $1 premium
Payoff at Expiration
The chart below shows profit and loss across a range of underlying prices for the default iron condor setup. Open the interactive calculator to change strikes, premiums, and quantities and see the shape update live.
How Profit and Loss Work
Maximum Profit: $400 per default position
Maximum Loss: $600 per default position
Break-even Points: $91 / $109
Timing & Time Horizon
30–45 days
Most traders enter this strategy 30–60 days before their expected move, allowing enough time for the position to develop while avoiding excessive time decay on shorter-dated options.
Capital Requirements
Moderate margin
How to Manage the Position
Most iron condor traders close at 50% of the maximum credit received rather than holding for the full amount, since the remaining premium is small compared to the risk of a late move breaking through either short strike. If the stock approaches one of the short strikes early, some traders roll that side out in time or further from the money to buy room, accepting a smaller net credit in exchange for a wider range.
- Monitor the position daily, especially as it approaches profitability
- Set clear profit targets and exit rules before entering
- Consider closing early to lock in gains rather than waiting for max profit
- Be prepared to cut losses if the thesis is wrong
Key Risks & What to Watch
- Profit capped on breakouts
- 4 legs = liquidity concerns
Common Variations
The default setup above is one version of the iron condor. Traders adjust strike placement to trade off cost, probability, and payout:
Wide iron condor
Space the short strikes further apart for a wider profit zone.
Key difference: Lower premium collected relative to the width, but higher probability of finishing profitably.
Best for: Traders prioritizing a high win rate over premium collected per trade.
Narrow iron condor
Bring the short strikes closer to the current price for more premium.
Key difference: Higher premium collected but a smaller range in which the trade stays profitable.
Best for: Traders who want more income per contract and are comfortable with tighter tolerances.
Frequently Asked Questions
Why use an iron condor instead of a short strangle?
Comparisons
The long wings define and cap the maximum loss, letting you know your worst case in advance — a short strangle has undefined, potentially unlimited risk on a large move.
What's the ideal outcome for an iron condor?
When to Use
The stock stays between the two short strikes through expiration, all four legs expire worthless, and you keep the full net credit received.
How much can I lose on an iron condor?
Greeks & Risk
The maximum loss is capped at the width of the wider spread minus the net credit received, realized if the stock finishes beyond either long strike at expiration.
When should I close an iron condor early?
Adjustments
Many traders close at 50% of the max profit received as a credit, since the remaining premium is small relative to the risk of holding to expiration through gamma risk near the strikes.
Model Before You Trade
Every strategy performs differently based on entry price, strike selection, and premium levels. Use the interactive Iron Condor calculator to model the payoff with your expected entry, strikes, and premiums before committing capital.
Educational information only. This guide explains how the strategy works mathematically and typically behaves. It is not investment advice, and past performance does not guarantee future results. Options trading involves significant risk, including the potential loss of premium paid. Paper trade or use small positions while learning.