Iron Condor
Combining a bull put spread and bear call spread to collect credit within a defined range.
What is a Iron Condor?
Combining a bull put spread and bear call spread to collect credit within a defined range.
Construction
Sell an out-of-the-money put spread and an out-of-the-money call spread with the same expiration.
When it may be studied
To study a range-bound, defined-risk credit position when expecting the underlying to remain between the short strikes.
Expiration profile
Maximum risk: Larger wing width minus credit, adjusted for asymmetry
Maximum reward: Net credit received
Break-even: Short put minus credit and short call plus credit
Worked example
Sell the 95/90 put spread and 105/110 call spread for $1.50. With five-point wings, simplified maximum loss is $3.50 per share.
Key risks and limitations
A strong move can produce maximum loss on one side. Four-leg execution, assignment, and expiration pin risk complicate management.
Entry and exit checklist
- Confirm contract multiplier, expiration, exercise style, settlement, and liquidity.
- Calculate the maximum loss under the intended structure.
- Review earnings, dividends, corporate actions, and other event risks.
- Define an exit, adjustment, or expiration plan before entry.
- Understand what happens if one leg is assigned or exercised early.