Iron Condor Strategy — Guide, Range Profits & Calculator

An iron condor is a neutral income strategy that combines a bull put spread below current price with a bear call spread above current price. This creates a profitable range where you benefit from time decay and sideways price movement, with defined risk on both sides.

Use the interactive chart below or jump to the setup guide to understand strike selection and profit zone construction for range-bound markets.

Interactive Payoff Chart

When to Use Iron Condors

• Outlook: Neutral; expecting stock to trade within a range.
• Volatility: High IV environments with expectation of IV crush.
• Market conditions: Low volatility periods or consolidation phases.
• Time factor: Strong time decay benefits as expiration approaches.

Setup: Strike Selection & Profit Zone

Four-Leg Construction

1. Sell put: Below current price (~15-20 delta)
2. Buy put: Further below (~5-10 delta)
3. Sell call: Above current price (~15-20 delta)
4. Buy call: Further above (~5-10 delta)

Strike Spacing Guidelines

• Symmetry: Keep put and call spreads equidistant from current price.
• Width: Wider spreads increase profit potential but also risk.
• Liquidity: Ensure all four legs have adequate volume and tight spreads.
• Profit zone: Distance between short strikes determines profit range.

Expiration

• 30–45 DTE optimizes time decay benefits.
• Avoid earnings dates unless expecting range-bound reaction.
• Consider upcoming events that may cause breakouts.

Want to optimize your profit zone? Try the Iron Condor Calculator to model different strike combinations and profit probabilities.

Payoff, Breakeven & Greeks

• Max Profit: Net credit received (if stock stays between short strikes).
• Max Loss: Strike width minus net credit.
• Breakeven points: Lower short strike minus credit; upper short strike plus credit.

Greeks (net position)

• Delta: Near zero at inception; remains neutral within profit zone.
• Theta: Positive; benefits significantly from time decay.
• Vega: Negative; profits from decreasing implied volatility.
• Gamma: Negative outside profit zone; accelerates losses on breakouts.

Management & Adjustments

• Profit taking: Close when capturing 25-50% of max profit.
• Time-based: Consider closing 7-14 days before expiration.
• Breach management: Have a plan when price moves outside profit zone.
• Volatility monitoring: Watch for IV expansion that may signal breakouts.

Adjustment Techniques

• Rolling the tested side: Move threatened spread further out.
• Converting to butterfly: Close untested side to limit further risk.
• Delta hedging: Add long/short shares to neutralize directional exposure.
• Time adjustments: Roll entire position to next expiration cycle.

Worked Example (Illustrative)

XYZ at $100. Set up iron condor: Sell $95 put/Buy $90 put, Sell $105 call/Buy $110 call. Collect $2.00 net credit.

• Max profit: $2.00 if XYZ stays between $95-$105.
• Max loss: $3.00 if XYZ moves below $90 or above $110.
• Breakeven points: $93 and $107.
• Profit zone: $10 wide ($95-$105).

The strategy profits from time decay as long as XYZ remains range-bound. Use the calculator to test different scenarios and adjustment strategies.

Frequently Asked Questions

Disclaimer

This page is for educational purposes only and is not investment advice. Options involve risk and are not suitable for all investors. Consider consulting a qualified professional. Examples are illustrative and exclude fees/slippage.

Sources & further reading: Cboe Options Education · OCC Investor Resources