Iron Condor

What is an iron condor?

An iron condor combines two vertical spreads: a bull put spread below the current price and a bear call spread above it. You collect a net credit upfront. As long as the underlying stays between your two short strikes at expiry, both spreads expire worthless and you keep the full credit.

The strategy has four legs — sell an OTM put, buy a further OTM put, sell an OTM call, buy a further OTM call — all at the same expiry. It's one of the most popular income strategies for traders who expect a quiet, rangebound market.

When to use it

Iron condors work best when implied volatility is elevated (you're selling expensive premium) and you expect the underlying to move less than the market implies. Earnings, FOMC, or other event-driven IV spikes often present opportunities — but only after the event has passed and IV is likely to contract.

Avoid iron condors when you expect a strong directional move, or when IV is already low (you'd be selling cheap premium with little cushion).

Construction

1. Sell an OTM put (short put — your lower breakeven anchor)

2. Buy a further OTM put (long put — defines your downside risk)

3. Sell an OTM call (short call — your upper breakeven anchor)

4. Buy a further OTM call (long call — defines your upside risk)

All four legs share the same expiry. The width of each spread is typically equal, though it doesn't have to be.

Profit, loss, and breakevens

Max profit: the net credit received. This is realised if the underlying closes between your two short strikes at expiry.

Max loss: the width of the widest spread minus the net credit. For equal-width spreads, this is simply spread width − credit.

Lower breakeven: short put strike − net credit

Upper breakeven: short call strike + net credit

Key risks

A sharp move beyond either short strike puts the spread in-the-money. Your loss grows as the underlying moves further through the short strike, up to the maximum loss.

IV expansion can hurt the position even without a move in the underlying — all four legs become more expensive to close. This is why timing and IV environment matter.

Assignment risk exists for the short legs if they go deep in-the-money close to expiry, particularly with American-style equity options.

Model it yourself

Open the Vega Lab dashboard, enter a ticker, and load a live option chain to build a iron condor with real strikes and premiums. The payoff chart and heatmap update in real time as you adjust each leg.