⏱ 1-Minute Summary An iron condor sells an OTM put spread and an OTM call spread on the same expiration: four legs, defined risk on both sides. It profits from theta decay when the stock stays inside a range and pays best when implied volatility is high and expected to fall. A favorite neutral, range-bound income strategy.
1. What Is an Iron Condor?
The iron condor combines a bull put spread (short put + long put below it) and a bear call spread (short call + long call above it). Both spreads are credit spreads: you collect a net credit upfront.
The structure is a short vega, long theta position: you want time to pass and volatility to fall while the stock stays put.
The chart above shows the four net Greeks of an iron condor as the stock price moves. It assumes the $175/$180/$220/$225 structure with the stock at $200 at entry, 45 days to expiry and a fixed implied volatility (IV) of 25% as the baseline.
At a stock price of $200 (when the stock stays between the two short strikes), the net Delta is close to zero (about -0.01), so the position is roughly direction-neutral; the net Theta is about +0.03 per day, the income from both short wings decaying; the net Vega is about -0.08, your exposure if implied volatility falls; and the net Gamma is slightly negative at about -0.009.
At a stock price of $175 (when the stock sits at the put-side wing, where the long put is), the short put is in the money: the net Delta rises to about +0.15, the net Gamma is near zero at about +0.001, the net Theta turns slightly negative at about -0.01, and the net Vega is near zero at about +0.01.
At a stock price of $225 (when the stock sits at the call-side wing, where the long call is), the short call is in the money: the net Delta turns negative to about -0.12, the net Gamma is about +0.002, the net Theta about -0.004, and the net Vega about +0.02.
At a stock price of $177.5 (when the stock sits between the short put at $180 and the long put at $175), the position shows a partial loss: the net Delta is about +0.15, the net Gamma about -0.001, the net Theta near zero, and the net Vega about -0.01.
At a stock price of $222.5 (when the stock sits between the short call at $220 and the long call at $225), the position shows a partial loss: the net Delta is about -0.12, the net Gamma near zero, the net Theta near zero, and the net Vega near zero.
From a low stock price to a high one, the net Delta starts positive on the put side and turns negative on the call side, crossing zero between the strikes; the net Gamma is slightly negative inside the wings and near zero outside; the net Theta is most positive inside the wings (the sweet spot for selling time) and fades toward the wings; and the net Vega is most negative inside the wings. This is the classic short-volatility profile: paid to wait, short vega, and roughly flat to direction.
2. Building the Position
- Pick an expiration (commonly 30–45 days).
- Sell a put at a strike below the current price and buy a put further below, a defined-risk put spread.
- Sell a call at a strike above the current price and buy a call further above, a defined-risk call spread.
Both spreads are usually the same width, making the position symmetric around the current price.
3. The Payoff Profile
| Scenario at expiration | Result |
|---|---|
| Stock inside the short strikes | Both spreads expire worthless; keep the full credit (max profit) |
| Stock beyond one short strike | Loss grows up to the width of that spread minus the credit (max loss) |
| Stock between short and long strikes | Partial loss on that side |
The chart above shows the full iron condor payoff at expiration; the next two charts repeat the same curve, each focusing on one scenario. It assumes you sell the $180 put and $220 call and buy the $175 put and $225 call for a net credit of about $0.7, 45 days out at 25% IV. Scenario 1 is the stock finishing inside the short strikes ($180 to $220): both spreads expire worthless and you keep the full credit, the maximum profit.
The chart above repeats the same payoff; here the focus is on the stock moving beyond one short strike. It assumes the same setup for about a $0.7 credit. If the stock closes below $180 or above $220, the loss grows one-for-one up to the width of that spread minus the credit: about $4.3 on either side ($5 minus the $0.7 credit), reached when the stock is at or beyond the long strike ($175 or $225).
The chart above repeats the payoff once more; here the focus is on the stock sitting between a short and a long strike. It assumes the same setup for about a $0.7 credit. In the small bands between $175 and $180 (put side) or $220 and $225 (call side), the position shows a partial loss between zero and the $4.3 maximum, scaling with how far the stock has moved past the short strike: for example, at $177.5 ($2.5 below the $180 short put) the position is down about $1.8, and at $222.5 ($2.5 above the $220 short call) it is also down about $1.8.
- Max profit: net credit collected.
- Max loss: width of one spread − net credit (per side).
- Breakevens: short put ± credit and short call ± credit.
The chart above shows the complete iron condor P&L at expiration in one line. It assumes the $175/$180/$220/$225 structure with the stock at $200, sold for a net credit of about $0.7, 45 days out at 25% IV. Between $180 and $220 the line is flat at the maximum profit of about $0.7; outside that range it slopes down to a maximum loss of about $4.3 on each side at the long strikes ($175 and $225), with breakevens near $179.3 and $220.7. This is a range trade: you win when the stock stays inside the wings and lose a fixed, known amount if it breaks one side.
The dashed line shows the same iron condor ten days later, with 35 days left. It sits below the at-expiry ceiling everywhere, because the short wings still hold time value that has not fully decayed: at $200 the position is worth only about $0.2 ten days in versus the full $0.7 at expiry. The profit zone also narrows sharply — roughly $191.8 to $205.7 ten days in instead of $179.3 to $220.7 — so the stock has less room to drift before the trade stops making money. The wings are shallower too (about -$2.2 at $175 instead of -$4.3), because the bought long wings still retain some value. The full maximum profit is achieved only at expiry: you keep the entire credit only if the stock sits between the short strikes when the options expire.
The chart above shows how the same 10-days-in curve shifts if implied volatility (IV) moves 10 points from the 25% baseline. The gray solid line is the baseline, the red dashed line is with IV 10 points higher (35%), and the blue dashed line is with IV 10 points lower (15%). The iron condor is short vega, but the effect is muted because the short wings are partly offset by the long wings: at $200 the position is about -$0.4 instead of +$0.2 with higher IV, and about +$0.6 with lower IV. The big change is the profit zone: with IV 10 points higher the whole 10-day curve sits below zero, so no stock price is profitable ten days in; with IV 10 points lower the profit zone widens to about $185 to $212 instead of $191.8 to $205.7. The wings barely move (about -$2.2 at $175 and $225 either way), because the long wings offset the short wings.
4. Choosing the Wings
- Delta: many traders sell wings around 15–20 delta so the strikes sit roughly one standard deviation out, giving a good probability the range holds.
- IV rank: sell when implied volatility is elevated (high IV rank/percentile) so the credit is rich and IV mean-reversion works in your favor (the quantitative high/low thresholds, e.g. ≥70 / ≤30, come from IV Percentile & IV Rank).
- Width: wider spreads collect more premium but risk more; keep the two sides balanced.
The chart above shows gamma from the short option's perspective, how much delta changes per $1 move in the stock, across the underlying price. It assumes a strike of 200 and a fixed implied volatility (IV) of 25% as the baseline; the lines show 14, 45 and 90 days to expiry. Because the panels show short options, every value is negative: at a stock price of 200, gamma is the most negative for the shortest-dated line: about -0.046 at 14 days, -0.027 at 45 days, and -0.019 at 90 days. Every line bottoms (is most negative) at the money and rises toward zero away from it, but the shorter-dated troughs are much deeper and narrower. This is the risk hotspot for an iron condor seller: short options carry the most negative gamma near the money with little time left, so the wings should sit away from the current price to keep them on the flat part of the curve.
The chart above shows gamma from the short option's perspective, how it changes as expiration approaches. It assumes a stock price of 200 and a fixed implied volatility (IV) of 25% as the baseline; the blue line is the 200 strike (at the money), the red line the 180 strike, and the green line the 220 strike. Because the panels show short options, every value is negative: the at-the-money line drops sharply near expiry, about -0.046 with 15 days to expiry, -0.032 at 30 days, and -0.019 at 90 days. The 180 and 220 lines stay low and nearly flat, drifting slightly more negative with longer expiry, around -0.01 at 90 days. The lesson for a seller is that gamma concentrates at the at-the-money strike and intensifies into expiration week; placing short strikes well away from the money keeps the position on the flat, low-gamma part of the curve.
The chart above shows vega from the short option's perspective, how much an option's price changes per 1% move in implied volatility, as the IV level itself changes. It assumes a stock price of $200, 45 days to expiry, and lines for strikes of $180, $200 and $220. Because the panels show short options, every value is negative: the at-the-money line (blue) is nearly flat at about -0.24 across the whole IV range, because an at-the-money option's vega barely depends on the IV level. The out-of-the-money line (green, strike $220) falls with IV: about -0.11 at 25% IV and -0.20 at 50% IV, and the in-the-money line (red, strike $180) also falls, from about -0.08 at 25% IV to -0.17 at 50% IV. This is vomma: away from the money, vega itself grows as IV rises, so a static read of vega (a single number held flat) understates the wings' IV sensitivity. For an iron condor seller this is a warning that a far wing becomes more IV-sensitive than its static vega suggests, especially into a volatility event like earnings.
5. Managing the Position
- Take profit: many close at ~50% of max profit rather than waiting for full decay.
- Roll the threatened wing: if the stock approaches one short strike, roll that side out in time (and further away) to collect more credit and buy time.
- Close early: this strategy has defined risk, and the maximum profit and loss are already determined; cut losses or take gains when the trade is no longer working.
- Assignment risk: short options can be assigned early; the long leg of the spread offsets most of the risk, but manage the short legs carefully.
6. When It Works and When It Does Not
- Works well: range-bound markets, elevated IV, no major financial events (no earnings within the window).
- Works poorly: strong trends or crashes, earnings announcements that gap the stock through a wing, and low-IV environments the option premiums collected are lower.
⚠️ Platform Data Boundary: This article explains the iron condor mechanics. The platform provides T-1 EOD closing data for backtesting defined-risk spreads at daily frequency over multi-day-to-multi-month horizons. Settlement is modeled from closing prices.
⚠️ Research Use Only: This article is educational. Iron condors can lose the full width of a spread; assignment and early exercise still apply to the short legs. Nothing here is a buy or sell signal. Use this platform's backtests as historical statistical reference only.