Glossary
Iron condor
A four-leg options strategy that sells an out-of-the-money put spread and call spread, profiting if price stays in a range.
On this page
An iron condor is an options position built from four contracts with the same expiration: a short put spread below the current price and a short call spread above it. The trader collects a net premium up front and keeps all of it if the underlying finishes between the two short strikes. The appeal is a defined, limited risk on both sides; the trade-off is that the maximum loss is usually larger than the maximum gain.
How it is built
- Sell an out-of-the-money put.
- Buy a put further below it (the protection).
- Sell an out-of-the-money call.
- Buy a call further above it (the protection).
Only one side can lose at expiration, since the stock cannot be below $90 and above $110 at once, so brokers usually margin the trade as the width of one spread.
What to watch for
An iron condor is a bet that the underlying moves less than option prices imply, so it is often placed when implied volatility is high. A large move or an earnings gap can push the position to its maximum loss quickly. Four legs mean four bid-ask spreads and commissions, and the short options can be assigned early. Most brokers require a spread-level options approval.