🦅

Iron Condor

Neutral

Use Zuviz's free options visualizer to build this strategy instantly and see your exact profit/loss before trading. Profit from low volatility by selling an out-of-the-money put spread and call spread. The Iron Condor collects premium while limiting risk on both sides.

⚡ Key Takeaways

  • Market Outlook: Neutral (expect range-bound movement with low volatility)
  • Max Profit: Net credit received ($200 in example at any price between short strikes)
  • Max Loss: Width of spread minus net credit ($300 in example if price moves beyond wings)
  • Breakeven Points: Short put strike - net credit AND short call strike + net credit
  • Best for: High IV environments when you expect price to stay within a range
  • Greeks Impact: Positive Theta (time decay works for you), negative Vega (benefits from IV drop)

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Market Outlook
Neutral
Max Profit
Limited (Net Credit)
Max Loss
Limited (Width - Credit)
Breakeven
2 Points

📊 Payoff Diagram

Open in Zuviz →

🏗️ Strategy Structure

An Iron Condor consists of 4 legs: a bull put spread below the current price and a bear call spread above.

Leg Action Type Strike Example Premium
1 Buy Put $95 (Lower) $1.00
2 Sell Put $97 (Mid-Low) $2.00
3 Sell Call $103 (Mid-High) $2.00
4 Buy Call $105 (Higher) $1.00

Net Credit: ($2.00 + $2.00) - ($1.00 + $1.00) = $2.00 per share ($200 per contract)

🧮 Key Calculations

Max Profit

Occurs when the stock stays between the short strikes ($97 - $103) at expiration.

Max Profit = Net Credit = $2.00 per share = $200 per contract

Max Loss

Occurs if the stock moves beyond either wing strike ($95 or $105).

Max Loss = Width of Spread - Net Credit = $2.00 - $2.00 = $0.00 per share
(In this example, the wings are $2 wide)

Breakeven Points

Lower Breakeven = Short Put Strike - Net Credit = $97 - $2.00 = $95.00
Upper Breakeven = Short Call Strike + Net Credit = $103 + $2.00 = $105.00

🎯 When to Use This Strategy

  • Neutral outlook: You expect the stock to stay within a range
  • High IV environment: Selling options when IV is elevated captures more premium
  • Before earnings (if you expect no big move): Profit from IV crush
  • Range-bound markets: Works well on indices like SPY, QQQ
  • Income generation: Popular strategy for consistent monthly income

📈 Greeks Impact

Delta (Δ)

Near zero at entry (neutral). Becomes negative if stock rises, positive if stock falls.

Theta (Θ)

Positive - time decay works in your favor. You want time to pass quickly.

Vega (ν)

Negative - you benefit from falling volatility. IV crush helps your position.

Gamma (Γ)

Negative - big moves hurt. Gamma increases as expiration approaches.

⚖️ Pros & Cons

Pros

  • Defined risk on both sides
  • Profits from time decay
  • Benefits from IV contraction
  • High probability of profit (if strikes are wide enough)
  • Can adjust if tested

Cons

  • Limited profit potential
  • Requires margin
  • Can lose on big moves in either direction
  • Assignment risk on short options
  • Commission costs for 4 legs

📝 Real-World Example

Stock: AAPL trading at $150
Strategy: Iron Condor with 30 DTE

Leg Action Strike Premium
1 Buy $140 Put $0.75
2 Sell $145 Put $1.50
3 Sell $155 Call $1.50
4 Buy $160 Call $0.75

Net Credit: $1.50 x 2 - $0.75 x 2 = $1.50/share ($150/contract)
Max Loss: $5.00 (width) - $1.50 (credit) = $3.50/share ($350/contract)
Breakevens: $143.50 and $156.50
Probability of Profit: ~68% (if AAPL stays between $143.50-$156.50)

🔗 Related Strategies

🦋 Iron Butterfly

Same concept, but short strikes are at the same price (ATM)

⚠️ Short Straddle

Higher premium but unlimited risk (no protective wings)

Visualize This Strategy

See the payoff diagram in Zuviz.

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