By Luca Moschini in Options — 10 Jan 2026

What Is an Iron Condor? Understanding a Market-Neutral Options Strategy

An iron condor is an options strategy built with four contracts: a call spread and a put spread on the same underlying and expiration. It aims to profit when price stays within a defined range while keeping risk capped.

Introduction / Definition

An iron condor is an options strategy that uses four different options contracts on the same underlying instrument. It is constructed by selling one call spread and one put spread with the same expiration date.

The strategy is designed to be market-neutral, meaning the investor is expressing neither a bullish nor bearish view on the underlying. Instead, the position is built around the expectation that price remains within a confined trading range through expiration.

Key Takeaways

An iron condor combines a sold call spread and a sold put spread on the same underlying and expiration date.
The strategy is commonly built using out-of-the-money options, with equal-width spreads on both sides.
The maximum profit is the premium collected when the position is opened.
The position benefits when price stays within the range between the short strikes until expiration.
Risk is defined by the spread width, and the premium collected reduces the maximum loss.

What Is an Iron Condor?

An iron condor spread is constructed by selling one call spread and one put spread on the same underlying instrument, using the same expiration day. All four options are typically out-of-the-money, although that is not a strict requirement.

A standard iron condor has these core features:

It includes one call spread and one put spread with the same expiration date.
The call spread and put spread are of equal width (for example, 10 points wide on both sides).
The distance between the call side and put side can vary; it does not need to be symmetrical.
It is often used on broad-based market indexes such as S&P 500 (SPX), Nasdaq 100 (NDX), or Russell 2000 (RUT), though it can also be used on individual stocks or smaller indexes.
The maximum profit is the cash premium collected when selling the iron condor.

Because the position is opened for a credit, the premium collected represents the best-case outcome if the underlying remains inside the desired range.

How an Iron Condor Is Built

The two spreads inside one position

An iron condor is made of two vertical spreads:

A call spread (a short call paired with a long call at a higher strike).
A put spread (a short put paired with a long put at a lower strike).

The spreads are typically the same width. For example, if the call strikes are 10 points apart, the put strikes are also 10 points apart.

Why it is described as market-neutral

The strategy represents neutrality because the investor is not positioned for a directional move. The intended outcome is that the underlying stays in a range, allowing the sold options to lose value as time passes, ideally expiring out-of-the-money.

Implementing Iron Condor Positions Step by Step

Below are two hypothetical iron condor constructions, rewritten for clarity while keeping the same trade structure provided.

Example 1: 10 ABC iron condors (55/65/80/90), same expiration

To open 10 ABC 55/65/80/90 iron condors (all with the same expiration date):

Sell 10 ABC 80 calls
Buy 10 ABC 90 calls
Sell 10 ABC 65 puts
Buy 10 ABC 55 puts

This structure creates:

A 10-point wide call spread (80/90)
A 10-point wide put spread (55/65)

Example 2: 3 XYZ iron condors (100/120/220/240), same expiration

To open 3 XYZ 100/120/220/240 iron condors (all with the same expiration date):

Sell 3 XYZ 220 calls
Buy 3 XYZ 240 calls
Sell 3 XYZ 120 puts
Buy 3 XYZ 100 puts

This structure creates:

A 20-point wide call spread (220/240)
A 20-point wide put spread (100/120)

Profit and Loss Dynamics

The ideal outcome

The goal is for the underlying to stay in a confined trading range from the time the position is opened until the options expire. If all options expire out-of-the-money, the investor keeps the entire premium collected (less commissions). That is the ideal scenario.

Because markets can move unpredictably, many traders choose to close the position before expiration. The idea is to lock in gains and eliminate the risk of an unfavorable late move.

Why closing early is often discussed

It is often advisable to forego the last few pennies of prospective profit and close the position before expiration. This locks in a profit and eliminates the risk of loss from sudden price swings.

Maximum Loss and Premium Loss Protection

Maximum loss: defined by spread width

When selling a 10-point spread (as in the ABC example), the spread width is 10 points. A vertical spread’s maximum value is limited to the strike difference, which is why the position’s risk is capped.

10-point width × 100 = $1,000 per iron condor (per 1-lot equivalent)

If multiple iron condors are sold, the maximum exposure scales with the number of positions.

Premium loss protection: the credit reduces the worst-case loss

The maximum loss is mitigated by the premium collected at the time the iron condor is sold.

Using the numbers provided:

If each iron condor is sold for $400 credit
Maximum spread exposure is $1,000
Maximum loss becomes $600 per iron condor ($1,000 − $400)

Range selection changes risk and reward

Different strike placements can change the balance:

Choosing further out-of-the-money options can reduce risk exposure, but it also reduces potential reward.
Choosing strikes closer to the current price can increase the potential reward, but the probability of achieving that gain may be less likely.
Finding a comfortable structure may require trial and error, ideally using underlying assets or sectors you understand.

Risk Management Considerations

Even though the iron condor is described as a low-risk strategy, risk management still matters for long-term consistency. The market can move sharply, and the position can shift from comfortable to stressful if price approaches one side of the condor.

Several practical outcomes described in the source include:

Positions are often closed early to reduce losses.
The underlying may reverse and move back in a favorable direction.
A position can still work out even if one option becomes slightly in-the-money near expiration, depending on how the rest of the structure behaves and whether the position is adjusted or closed.

A key theme is that comfort matters. When the risk/reward balance feels manageable, decisions tend to be calmer. When comfort is violated, exposure can be reduced by closing or adjusting positions.

Context or Application

Iron condors are used by traders who want to participate in the market without taking a directional stance. Instead of betting on “up” or “down,” the strategy is built around the idea of a defined range.

That range-based framing is why iron condors are often described as “high-probability” in concept: the position benefits when price stays between the short strikes. At the same time, the strategy still requires monitoring and decision-making because markets can move erratically.

Conclusion

An iron condor is a four-contract options strategy created by selling a call spread and a put spread on the same underlying and expiration date. The maximum profit is the premium collected when the position is opened, and the strategy seeks to benefit from the underlying staying in a confined trading range.

While risk is defined and reduced by the premium collected, outcomes still depend on price movement and position management. Using practice trading to test strike selection and comfort can help traders understand whether the structure fits their style.

FAQs

What is an iron condor in options trading?

An iron condor is an options strategy built with four contracts by selling a call spread and a put spread on the same underlying instrument and expiration date.

Why is an iron condor considered market-neutral?

An iron condor is considered market-neutral because it is designed without a bullish or bearish directional view, aiming instead for the underlying to stay within a range.

What is the maximum profit on an iron condor?

The maximum profit on an iron condor is the premium collected when selling the call spread and put spread.

When does an iron condor perform best?

An iron condor performs best when the underlying stays within a confined trading range and the options expire out-of-the-money.

How is the maximum loss determined on an iron condor?

The maximum loss is determined by the width of the spreads multiplied by 100, reduced by the premium collected when the position is opened.

Why do some traders close iron condors before expiration?

Some traders close iron condors before expiration to lock in profits and eliminate the risk of loss from late, unpredictable price swings.

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Risk Disclosure

All content is provided for educational purposes only and does not constitute investment advice. Trading involves risk, and past performance is not indicative of future results. Please review our full Risk Disclosure for additional details.

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