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The iron condor, explained

A put credit spread below the current price and a call credit spread above it, opened together. Both collect premium. If the underlying finishes between the two short strikes, everything expires worthless and you keep both credits.

Construction
Put credit spread + call credit spread, same expiry
Outlook
Neutral — a range rather than a direction
Premium
Collected at entry
Complexity
3 of 3

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What it is

Four legs, but only two ideas: it is one credit spread stacked on another, on opposite sides of the current price. Everything true of a credit spread is true of each half here.

The position profits from the underlying going nowhere. Both short strikes sit away from the current price, and as long as it finishes between them, all four legs expire worthless and both credits are kept. That is the maximum gain and it occupies a wide, flat plateau in the middle of the diagram.

Only one side can ever be breached at expiry — the underlying cannot finish both above the call strike and below the put strike. So the maximum loss is one spread's width less the total credit, not two. This is the single most commonly miscalculated number in the structure, and getting it wrong doubles your estimate of the risk.

How it works

  1. Sell a put below the current price

    The lower short strike. This is the floor of the profit zone.

  2. Buy a further put below that

    The protective leg for the downside, capping what the put side can cost.

  3. Sell a call above the current price

    The upper short strike, and the ceiling of the profit zone.

  4. Buy a further call above that

    The protective leg for the upside. All four share one expiry.

  5. Work out the plateau and the cliffs

    Maximum gain is the total credit, earned anywhere between the short strikes. Maximum loss is the wider spread's width less the total credit. Both fixed at entry.

The payoff

$78$89$100$111$122$08590110115$88$112
Max profit
$200
Max loss
−$300
Break-evens
$88 · $112
Short $90 put / long $85 put, short $110 call / long $115 call. Total credit $200; the plateau runs from $90 to $110; the maximum loss is $300 on either side. This is the position at expiry only. Before expiry the same structure is worth something different, driven by the time remaining and by implied volatility — neither of which a payoff diagram shows.
Want to draw a different combination of strikes and premiums? The options payoff calculator takes any set of legs you enter and plots them. It runs in your browser and nothing you type is transmitted.

Worked example

XYZ is a placeholder, not a real security. Every guide in this section uses it at $100 so the structures can be compared directly.

XYZ trades at $100. You sell the $90 put for $1.60 and buy the $85 put for $0.60. You sell the $110 call for $1.60 and buy the $115 call for $0.60. Total credit: $2.00 per share, $200.

If XYZ finishes anywhere between $90 and $110, all four legs expire worthless and you keep the full $200. That is the same result at $91 as at $109.

If XYZ finishes below $85, the put spread is fully breached: $5 width less the $2.00 credit, a $300 loss. The call side expired worthless and contributed its credit.

If XYZ finishes above $115, the call spread is fully breached for the same $300. Note that it is $300, not $600 — the price cannot be in both places at once.

Break-evens are $88 and $112: each short strike, offset by the total credit collected.

Both sides of it

What it gives you

  • Profits from the underlying doing nothing at all
  • Risk is defined on both sides before entry
  • A wide profit zone — the gain is the same anywhere between the short strikes
  • Both sides collect premium, so the credit is larger than either spread alone

What it costs you

  • Four legs means four spreads to cross on entry, and more to close
  • The maximum loss is typically several times the maximum gain
  • A large move in either direction breaches one side
  • Adjusting a breached side is where most of the difficulty in this structure lives

What assignment does

Assignment on one of the short legs delivers or takes a hundred shares while the rest of the structure remains open. The corresponding long leg still caps the damage, but the capital required jumps immediately. Because only one side can be in the money at expiry, only one side can produce assignment.

Frequently asked questions

What is the maximum loss on an iron condor?
The width of the wider spread, multiplied by a hundred, less the total credit collected. Not both spreads added together — the underlying cannot finish above the call strike and below the put strike simultaneously, so only one side can ever be breached. Counting both is the most common error in sizing this position and it overstates the risk by roughly double.
Why use an iron condor instead of a single credit spread?
It collects premium from both sides while the maximum loss stays at one side's width. The extra credit improves the ratio between the best and worst cases relative to a single spread of the same width. The cost is four legs rather than two, which means more in spreads and commissions and more to manage if one side is threatened.
What happens if the price sits right at a short strike?
This is the awkward outcome. The short leg may or may not be assigned, and you may not find out until after the market closes — leaving an unexpected hundred-share position over a weekend. Many holders close the position before expiry specifically to avoid this, accepting slightly less than the full credit in exchange for certainty.
How far apart should the short strikes be?
Wider apart means a larger profit zone and a smaller credit; closer together means more credit and a narrower zone. That trade-off is visible in any option chain and is the central decision in constructing the position. Which point on it suits a given situation is not a question this page can answer.

Related guides

These guides explain how each structure is built and how it behaves. Nothing here is a suggestion to buy or sell anything, no security is named, no figure is quoted from any market, and no structure is presented as better than another — which one suits a situation is not a question this page can answer.

⚠ Important disclaimer

These calculators are provided strictly for educational and informational purposes. They perform arithmetic on figures you enter. Nothing on these pages is financial, investment, trading, legal or tax advice, nor a recommendation to buy, sell or hold any security, derivative, commodity or cryptocurrency.

The creator is not a registered investment adviser, research analyst or broker with the SEC, FINRA, CFTC, NFA, any U.S. state securities regulator, or SEBI (as an Investment Adviser or Research Analyst). Trading involves substantial risk of loss — you can lose some or all of your capital, and with leveraged instruments you can lose more than you deposit.

Contract specifications, lot sizes and margin rates shown here are seeded from published standards, are editable, and may be out of date or wrong for your broker. Exchanges revise lot sizes and margin requirements, and brokers routinely impose more than the regulatory minimum. Verify every figure against your own broker before acting on it. These tools carry no warranty of any kind and may contain errors.

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