An iron condor is a four-leg options position that consists of two credit spreads on the same underlying stock or ETF, with the same expiration date.

The lower half is a bull put spread: a sold put at a higher strike and a bought put at a lower strike, positioned below the current stock price. The upper half is a bear call spread: a sold call at a lower strike and a bought call at a higher strike, positioned above the current stock price.

The position collects premium from both sides simultaneously. The total credit received is the sum of the bull put spread credit and the bear call spread credit. The position profits when the stock stays within the range defined by the two short strikes at expiration. It loses on whichever side the stock moves through if either short strike is breached.

Because the stock can only move significantly in one direction at a time, only one side can reach maximum loss. This is the structural advantage that distinguishes the iron condor from running the two spreads as separate, unrelated positions.

Using a stock priced at $85.

Bull put spread (lower half): Sell the $80 put, buy the $75 put. Net credit: $0.70.

Bear call spread (upper half): Sell the $90 call, buy the $95 call. Net credit: $0.75.

Total credit received: $1.45 per share, or $145 per contract.

Maximum gain: $145 per contract. Earned when the stock closes between $80 and $90 at expiration, leaving both short strikes out of the money.

Maximum loss on the put side: $355 per contract. The $5 put spread width minus the $1.45 total credit.

Maximum loss on the call side: $355 per contract. The $5 call spread width minus the $1.45 total credit.

Put side breakeven: $78.55. The short put strike minus the total credit received.

Call side breakeven: $91.45. The short call strike plus the total credit received.

Profit zone: The stock stays between $78.55 and $91.45 at expiration.

Capital required: $355 per contract. Only one spread can reach maximum loss, so the broker holds collateral for the wider spread only, minus the total credit.

The iron condor setup follows the same framework as the individual spreads, applied to both sides at once.

Strike selection. Target short strikes in the 0.15 to 0.25 delta range on both sides. At 0.20 delta on each side, the probability that the stock expires outside either short strike is approximately 20 percent per side. The combined probability of the stock staying within the profit zone at expiration is approximately 60 to 65 percent. This is the structural edge: the position profits roughly two out of three times when the short strikes are placed at the right distance.

Check IVR before entry. Elevated IVR is even more important for the iron condor than for single-leg spreads because both sides benefit simultaneously when IV is high. Above 50 IVR is the standard target. When IV is elevated, the short strikes can be placed further from the current price while still generating meaningful premium, which widens the profit zone and reduces the probability of either strike being tested.

Use equal-width spreads. Both the put spread and the call spread should typically be the same width, most commonly $5 wide. Equal-width spreads mean the maximum loss is identical on both sides and the position is delta-neutral at entry, with no built-in directional bias.

Expiration. 30 to 45 days to expiration. Same as the individual spreads. Monthly expirations are the most liquid.

The iron condor follows the same management framework as the individual spreads, with one important addition.

Close at 50 percent of maximum profit. When the full iron condor can be bought back for $0.73 or less (50 percent of the $1.45 total credit), close the entire position. Do not leg out by closing one spread while holding the other unless there is a specific reason to do so.

Close at 21 days to expiration. If the 50 percent target has not been reached by 21 days remaining, close the position outright. Gamma risk rises sharply in the final three weeks and makes the iron condor difficult to manage calmly.

Adjust the tested side. If the stock moves toward one of the short strikes before 21 days, the position can be adjusted rather than closed outright. The most common adjustment is to close the untested side (the spread that is not being challenged) and use the credit collected from that close to roll the tested side further out in strike or out in time. This reduces the net cost of the adjustment and gives the position more room.

Stop loss. If the total spread reaches two to three times the original credit received ($2.90 to $4.35 in this example), consider closing the entire position. This is the same framework as the individual spreads, applied to the combined position value.

What underlying stocks and ETFs work best for iron condors? Iron condors work best on underlyings that move within a predictable range rather than trending strongly in one direction. Broad index ETFs such as SPY, QQQ, and IWM are the most commonly used underlyings for iron condors because they are highly liquid, have active options markets across many strikes, and tend to revert toward a range rather than making sustained directional moves. Individual stocks can be used but carry more event risk. A stock with an earnings announcement or a significant catalyst within the expiration period will often make a directional move that violates the profit zone. Stick to underlyings with no scheduled binary events within the period.

How do I know which side to adjust when the iron condor is tested? When the stock moves toward one of the short strikes, the decision to adjust depends on how much time remains and how far the strike has been breached. A useful rule of thumb is to consider adjusting when the tested short strike has moved to approximately 0.40 delta or higher, meaning the market is assigning a 40 percent probability that the stock will close beyond that level. At that point, the untested spread has lost most of its value and can often be closed for a small debit, freeing up capital that can be used to move the tested spread further away. Do not adjust too early, as many tested positions recover without adjustment and early adjustments can be costly.

Is an iron condor the same as selling a strangle? A short strangle sells a put and a call without any bought options to cap the losses, which generates more income but carries theoretically unlimited risk on the call side and very large risk on the put side. An iron condor buys the outer strikes to define the maximum loss. The income from the iron condor is lower than the strangle, but the capital requirements and maximum risk are defined and bounded. For individual investors using a standard brokerage account, the iron condor is accessible in ways that the naked strangle is not, because the defined risk allows brokers to hold a specific, calculable collateral amount rather than requiring a margin account and substantial capital reserves.

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