What is an iron condor?
An iron condor is four legs in one expiration: a short put with a long put below it, and a short call with a long call above it. The two short strikes define the range you are being paid for.
Both long options are protection. They cap the loss on each side and turn what would be two open-ended risks into one number you can state before entering.
When traders use it
Traders sell condors when they expect a range and want time decay on their side.
- Implied volatility is elevated and you think the priced-in move is too large.
- The stock has been trading in a band you expect to hold.
- There is no scheduled event inside the expiration window.
The P/L shape
The payoff is a plateau between the short strikes with a shoulder falling away on each side, flat again beyond the long strikes.
Worked example. XYZ trades at $100. You sell the $95 put and buy the $90 put; you sell the $105 call and buy the $110 call. Total credit $1.50, or $150.
- Max profit
- $150 — the credit, if XYZ closes between $95 and $105
- Max loss
- $350 — the $500 wing width minus the credit
- Breakevens
- $93.50 and $106.50
Only one side can lose at expiration, so the risk is the wing width once, not twice. That is the whole reason to sell both spreads rather than one.
Greeks and time decay
Delta starts near zero if the strikes are balanced. It turns against you as price approaches either short strike, and the drift accelerates. Gamma is negative, so the position gets worse faster the closer expiration gets.
Theta is positive and is the reason the trade exists. Vega is negative — a volatility spike widens the market's expected range and marks the condor down even before the stock has gone anywhere.
Build it in DeltaForm
- Open the builder and choose the symbol and expiration.
- Add the put spread: short put, long put at a lower strike.
- Add the call spread: short call, long call at a higher strike.
- Check the total credit and read both breakevens off the payoff curve.
- Step the date forward to watch the plateau flatten as decay accrues.
Frequently asked questions
How wide should the wings be?
The wing width sets the maximum loss. Wider wings pay slightly more credit and risk more. Narrower wings cost more in protection but keep the worst case small. Model two widths side by side.
Do both sides ever lose?
Not at expiration — the stock can only finish on one side. Before expiration both spreads can be marked against you at once if implied volatility jumps.
How is this different from an iron butterfly?
A condor's short strikes sit apart, giving a wide profit range and a smaller credit. An iron butterfly puts both short strikes at the same price: a much bigger credit and a much narrower range.