Iron Condor

What is an iron condor?

An iron condor is a four-leg options strategy that sells a put spread below the stock and a call spread above it in the same expiration. The trader collects a net credit and keeps all of it if the stock finishes between the two short strikes. The two long options cap the loss on each side, so the maximum risk is known before the trade is placed.

The four options share the same underlying, expiration, deliverable, and quantity. The inner short options define the target range, and the outer long options cap each side’s expiration loss.

A reverse iron condor takes the opposite side of all four legs and pays a debit for movement outside the range. This page models the credit version.

Iron condor P&L before expiration

Current P&L is the entry credit minus the complete closing debit. A $200 entry credit followed by a $125 closing debit produces $75 profit for one package.

The expiration payoff is one view of the trade. Use the selected date and implied volatility to calculate the value before expiration, and calculate net theta and vega from all four legs at the current price. A changing stock price affects the package before either expiration breakeven is crossed.

Greek signs change with the stock’s position. For the 90/95/105/110 structure with one contract per leg, 30 calendar days, uniform 20% IV, zero rates/dividends and European Black-Scholes, net vega is −$10.61 per IV point and theta +$3.54 per day at spot $100. At $90 they become +$3.24 vega and −$1.08 theta. These model sensitivities do not assume the original entry credit equals the model prices. Calculate every leg at the selected price and date; the entry credit does not fix the signs.

How fees and slippage change the result

Keep the $200 opening credit and $125 closing debit above as assumed marks: gross profit is $75. Four opening and four closing leg executions at a hypothetical $0.65 fee each cost $5.20. If fills also lose $0.01 per share per leg against those marks, slippage is 8 × $0.01 × 100 = $8. Net profit is $75 − $5.20 − $8 = $61.80.

If the credit and closing debit already represent actual fills, subtract fees but do not subtract the same slippage again. Total costs, quantities and whether the trade is closed or expires must be stated separately.

How to choose iron condor strikes and size

Use expected move, chart levels, catalysts, and gamma exposure to frame the price range. Compare the net credit, wing widths, and distances to breakeven for each candidate.

Size the trade from its dollar loss limit. Three of the example packages collect $600 and have $900 of maximum expiration loss. Confirm the account’s buying-power requirement for the selected contracts before entering the package. The options profit calculator compares credits, profit ranges, and loss limits across strikes and dates.

Managing an iron condor and early assignment

Closing one complete side leaves the other vertical spread with its long-option protection intact. Add the realized result from the closed side when evaluating the remaining trade.

For equity options, assignment of a short leg creates its stock delivery while the other legs remain open. Choose the intended expiration outcome and manage the complete package around it. Record closing fills, replacement trades, and charges in the total P&L.

Example: assignment of the short call

If the short 105 call is assigned, one standard contract creates a sale of 100 shares for $10,500. Without stock already held, that is a −100-share position. The long 110 call remains an option unless separately exercised or closed; the put legs also remain open.

Record the assigned contract’s removal, strike cash, resulting shares and each remaining option. Closing the shares, exercising the long wing and selling the long wing are different choices with different prices, time value and costs. The original expiration graph assumes the complete structure resolves under its stated terms; it does not price a later unmatched stock liquidation.

Risks and limitations of iron condors

• Size the condor from its maximum loss. In the example it risks $300 to make $200, and the loss reaches its maximum at expiration if the stock finishes beyond either long strike.
• Track implied volatility while the condor is open. Near the middle of the range the position has negative vega, so a rise in implied volatility raises the cost to close even when the stock has not moved.
• Close the package before the final session when the stock sits near a short strike. An American-style short leg can be assigned before expiration, and a finish near a short strike leaves the final share position unknown until assignment notices arrive.
• Count fees and slippage in the result. Four legs carry four bid-ask spreads on entry and exit: in the example, $5.20 of fees and $8 of slippage cut a $75 gross profit to $61.80.
• Closing early books the closing debit, not the expiration diagram: a $125 debit against the $200 credit leaves $75.

Bottom line

Between $93 and $107 the condor keeps some of its $200 credit, and between $95 and $105 it keeps all of it, against a $300 loss at either wing. Sell it when you expect the range to hold through expiration, and size it from the $300 maximum loss rather than the credit.