Iron Condor: How It Works, With Example
An iron condor sells a put spread below the current price and a call spread above it, on the same expiration. You collect two credits and keep them if the stock stays between the two short strikes at expiration. Each side has a long option that caps the loss, so the trade is defined-risk in both directions.
How it works
- Pick a stock trading in a range, with an expiration about 30 to 45 days out.
- Sell a put spread below the price: sell a put and buy a lower put.
- Sell a call spread above the price: sell a call and buy a higher call.
- Keep the combined credit if the stock stays between the short strikes, or close early to lock in part of it.
When to use it
Use it when you expect the stock to move sideways and implied volatility is elevated. The wider the range between the short strikes, the higher the probability of profit - but the smaller the credit.
Profit, loss and breakeven
Max profit
The total net credit from both spreads.
Max loss
Width of one spread minus the total credit, times 100 per contract. Only one side can lose at expiration.
Breakeven at expiration
Two points: the short put strike minus the credit, and the short call strike plus the credit.
Example trade
XYZ trades at $100. You sell the 95/90 put spread for $1.35 and the 105/110 call spread for $1.25, a total credit of $2.60 ($260 per contract). Max profit is $260 if XYZ stays between $95 and $105. Max loss is $240 if it falls below $90 or rises above $110. Breakevens are $92.40 and $107.60.
Iron Condor on the Strategy Price Timeline
Example on a $100 stock with 35 days to expiration. The shaded bands show where the stock needs to be at expiration for the trade to profit, partially lose or reach the max loss - the same chart every EasyTrade signal shows.
Swipe to see full chart →Profit zone
Transition zone
Loss zone
Risks to know
- A big move in either direction can reach the maximum loss on that side.
- With four legs, commissions and bid-ask spreads take a bigger share of the credit.
- Either short option can be assigned early if the stock moves through it near expiration.
How EasyTrade manages it
EasyTrade closes iron condor signals at 60% of max profit, or at the stop-loss if either wing is threatened, and exits several days before expiration. On the Diamond plan, open iron condors sent to tastytrade are closed automatically at 5 days to expiration.
Recent EasyTrade Iron Condor results
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