The iron condor, drawn on a real risk graph
An iron condor is a bet that a stock stays inside a range until expiry. You collect cash up front, you know your worst case before you place the order, and the whole trade fits on one picture: the risk graph. This guide builds one condor step by step, with every number checked.
What an iron condor is
An option is a contract that gives its owner the right to buy (a call) or sell (a put) 100 shares at a fixed price, called the strike, until a set date, called the expiry. The person who sells the option receives a payment, called the premium, and takes on the obligation.
An iron condor is two simpler trades joined together:
- A bull put spread below the current price: sell a put, and buy a cheaper put further down to cap the loss.
- A bear call spread above the current price: sell a call, and buy a cheaper call further up to cap the loss.
Both spreads pay you a credit, which is the premium you collect minus the premium you pay. If the stock finishes between the two short strikes at expiry, every option expires worthless and you keep the whole credit.
The example: one condor on AAPL
All figures below are illustrative, model prices. The stock is AAPL at 331.90, with 44 days to expiry.
| Leg | Action | Strike | Role |
|---|---|---|---|
| 1 | Buy put | 290 | Lower wing, caps the downside loss |
| 2 | Sell put | 310 | Short put, collects premium |
| 3 | Sell call | 355 | Short call, collects premium |
| 4 | Buy call | 375 | Upper wing, caps the upside loss |
The four legs together pay a net credit of about $6.71 per share, or about $671 per condor, because one contract covers 100 shares.
Max profit, max loss and break-evens
Three numbers describe the trade at expiry.
- Max profit is the credit: about $671. You keep it if AAPL closes between 310 and 355 on expiry day.
- Max loss is the width of a wing minus the credit. Each wing is 20 points wide (310 to 290, and 355 to 375). So the max loss is 20 × 100 − 671 = 2,000 − 671 = about $1,329. Only one side can lose at expiry, because the stock cannot finish below 290 and above 375 at the same time.
- Break-evens are the short strikes moved outward by the credit per share. Lower: 310 − 6.71 = 303.29. Upper: 355 + 6.71 = 361.71.
| Figure | Arithmetic | Result |
|---|---|---|
| Credit | 6.71 × 100 | about $671 |
| Max loss | 20 × 100 − 671 | about $1,329 |
| Lower break-even | 310 − 6.71 | 303.29 |
| Upper break-even | 355 + 6.71 | 361.71 |
The profit zone at expiry runs from 303.29 to 361.71, a band about 58 points wide around a price of 331.90. Between each short strike and its wing the result changes in a straight line, from the full credit down to the full loss.
When an iron condor fits
A condor suits a view that the stock will stay in a range. Two conditions make the trade easier to justify:
- A range-bound view. You expect the price to move around without trending hard in one direction before expiry.
- High implied volatility. Implied volatility is the size of future moves that option prices assume. When it is high, options are more expensive, so the credit you collect for the same strikes is larger and the break-evens sit further apart. If volatility then falls, the options you sold lose value, which helps the trade.
A related trade, the iron butterfly, sells both short options at the same strike. It collects more credit but has a much narrower profit zone. A short strangle drops the wings entirely, which removes the cap on losses.
Where the condor loses
The trade loses when the stock moves far enough in either direction. A fall through 303.29 or a rise through 361.71 at expiry produces a loss, and beyond 290 or 375 the loss is the full $1,329.
The shape of the trade matters here. The best case is $671 and the worst case is $1,329, so one full loss takes about two full wins to recover. That ratio is the price of a wide profit zone.
Before expiry, the trade can also show a loss with no move at all if implied volatility rises, because the options you sold become more expensive to buy back. A sharp fall usually brings both problems together: the price moves toward the short put and volatility jumps. The crash band exists to show that combined effect.
Managing the trade
An iron condor does not have to be held to expiry. Three ideas guide the decisions.
- Time decay. Options lose value as expiry approaches, a process measured by theta. That decay works in favour of the seller, and it speeds up in the final weeks. Starting around 30 to 50 days out gives the trade time to collect decay before the fastest and most volatile stretch.
- Closing early. One plan is to close the trade once a set share of the credit is earned, for example half. Holding the last part of the credit means carrying the full max loss for a small extra gain.
- Days to expiry. In the last few weeks, gamma (how fast the trade's direction exposure changes) grows large near the short strikes. A small move then changes the result quickly, so a plan often sets a date to close or adjust regardless of profit.
Adjustments include rolling the untested side closer to collect more credit, or closing the tested side. Each one changes the max loss, so it should be checked on the graph before it is sent.
Building it in Trident from a live chain
In the Strategy Lab, the iron condor template builds all four legs from the live option chain in one click. It picks the short strikes by delta, around 20 delta on each side. Delta is a number between 0 and 1 for calls (0 and minus 1 for puts) that measures how much an option's price moves for a $1 move in the stock; a 20 delta option is well out of the money. The template then places each wing two strikes further out.
The strikes, credit, max loss and break-evens appear at once, priced from the chain. You can move any strike up or down and the figures update. The Screener can help find underlyings where implied volatility is high relative to its own history, before you build the trade.
Checking it on the risk graph
The risk graph plots profit and loss against the stock price. For a condor it shows a flat top between the short strikes, two sloping sides and two flat floors at the max loss. Trident draws two lines: the result at expiry, and the result today, priced with a model. The today line is curved and sits below the expiry line between the strikes, because the time value has not decayed yet.
The crash band adds a third view: the trade priced through a market fall with volatility rising, rather than a quiet fall. For a condor this band usually sits below the today line on the downside, since the short put gains value from both the fall and the volatility jump. Reading the band next to the max loss helps you decide how many condors fit your account. The Greeks panel shows the trade's delta, theta and vega so you can see which force is driving the result.
Frequently asked questions
What is the max loss on an iron condor?
The width of the wider wing, times 100, minus the credit received. In the example that is 20 × 100 − 671, about $1,329 per condor, before commissions.
How are the break-evens calculated?
Subtract the credit per share from the short put strike, and add it to the short call strike. Here that gives 310 − 6.71 = 303.29 and 355 + 6.71 = 361.71.
Why does the condor show a loss before expiry when the stock has not moved?
If implied volatility rises, the options you sold cost more to buy back, so the trade marks at a loss. The today line on the risk graph includes this effect; the expiry line does not.
Is an iron condor the same as a short strangle?
No. A short strangle sells the same put and call but buys no wings, so its loss has no cap. The condor's wings fix the worst case at a known amount.
You can build this condor from a live chain, move its strikes and read it against the crash band in Trident. Book a demo to see it on your own symbols.
Illustrative example with model prices, not a recommendation. Options carry risk of loss. See the risk disclosure.