Iron condor strategy explained
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An iron condor is a defined-risk, usually neutral / range-bound options structure. You sell an out-of-the-money put spread below the market and an out-of-the-money call spread above the market, same expiration, for a net credit.
You want the underlying to stay between the two short strikes so both short options lose value. Profit is limited to the credit; loss is limited by the long options on each wing.
Structure (4 legs)
- Sell OTM put (higher put strike of the put wing)
- Buy further OTM put (lower put strike) — defines risk on the downside
- Sell OTM call (lower call strike of the call wing)
- Buy further OTM call (higher call strike) — defines risk on the upside
Payoff intuition
- Max profit ≈ net credit if price stays between the short put and short call
- Max loss ≈ width of the tested wing − credit
- Break-evens ≈ short put − credit (lower) and short call + credit (upper)
When it fits / when it does not
- Fits: you expect a quiet range; you want defined risk; you understand credit vs wing width
- Does not fit: you expect a big breakout; you cannot manage assignment or early tests of a wing; liquidity is poor
Open Iron Condor in Builder → Full Spreads lesson Strategies library
Beginner FAQ
What is an iron condor strategy?
An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread, same expiration, for a net credit. You want the stock to stay in a range.
Is an iron condor defined risk?
Yes. Long options on each wing cap the loss. Max loss is about the tested wing width minus the credit.
When do traders use an iron condor?
When they expect a range-bound market and want defined risk. Large trends and volatility spikes can test a wing.
Next: Print the options cheat sheet or open this setup in the Builder.