Iron Condor: Income on Wider Ranges with Defined Risk
You expect the stock to stay flat within a wider range than a butterfly allows. An iron condor lets you sell a call spread above and a put spread below the stock, with wider spreads than a butterfly. You collect premium on both sides and profit if the stock stays between the long strikes at expiration.
- Exactly what you buy and sell: a call spread and a put spread, four legs, wider spreads
- The payoff: wider profit zone than a butterfly, defined risk, broader range tolerance
- Your numbers: net credit, max profit and loss, breakevens on both sides
- When an iron condor fits and how it compares to a butterfly
An iron condor is the wider, more aggressive cousin of the iron butterfly. You sell a call spread above the stock and a put spread below it, but with spreads that are $10-$20 wide instead of $5-$10 like a butterfly. This creates a wider profit zone, collects less total credit per spread, but reduces the probability that the stock will blow through your wings. It is the pick for traders who want to profit from stillness but want a wider margin for error.
What You Actually Do
Apple trades at $200. You expect it to stay roughly between $185 and $215 for the next month. You sell one 1-month $215 call for $0.75 a share, $75, buy one 1-month $225 call for $0.10 a share, $10 (a $10 wide call spread). You sell one 1-month $185 put for $0.75 a share, $75, buy one 1-month $175 put for $0.10 a share, $10 (a $10 wide put spread).
Your net credit: $75 plus $75 minus $10 minus $10 = $130 collected. That is your max profit if the stock stays between $185 and $215. Your max loss: if Apple soars to $235 or crashes to $165, one side blows up, and you lose the difference between the spread width and your credit. Max loss is $10 minus $0.13 = $9.87 per contract, or about $987.
The Payoff, Drawn
Drag the slider to see how you do at different ending prices for Apple (at 1-month expiration).
The shape is a wider tent than a butterfly. Between $185 and $215, you profit the full $130 (both spreads expire worthless). At $175-$185 and $215-$225, profit shrinks as one spread moves ITM. Below $175 or above $225, one spread bleeds and you approach max loss of about $987. The key: the profit zone is $30 wide instead of the $20 in a butterfly, giving you more room to be wrong.
The Condor: Wider Profit Zone, Lower Probability, Higher Reward
An iron condor trades the high probability of a butterfly for a wider profit zone and more credit collected.
In a butterfly, your profit zone is $10-$15 wide and your probability of max profit is often 70%+. In a condor, your profit zone is $30 wide and your probability of max profit drops to maybe 50-55%, but you collect more credit per trade ($130 vs $75 in a butterfly). You are betting on a wider range of stillness, which is more likely to happen over a month but less likely to produce a home run.
The tradeoff is elegant: pay less precision for more comfort. If the stock stays between $185 and $215, you profit. If it breaks those boundaries, your wings protect you with defined max loss.
When an Iron Condor Fits
- You expect the stock to stay within a wider range (e.g., $185-$215)
- IV is elevated and you can collect good premiums
- You want more profit than a butterfly but accept lower probability
- You expect the stock to break the wings you set
- IV is low and premiums are thin
- You need very high probability (use butterfly)
An iron condor is for the trader who values wider profit zones and higher credits over the highest probability of success. It is the middle ground between a butterfly (tight, high probability) and a straddle (wide, unlimited risk).
A Worked Example
Walk through three scenarios: you collected $130 net upfront.
Apple stays at $200. All four legs expire worthless. You keep the full $130 credit. Profit: $130. Perfect profit on a flat move.
Apple rises to $218. The call spread is partially ITM: the sold call at $215 is $3 ITM ($300 loss), the bought call at $225 is OTM (worthless). Net call loss: $300. The put spread is worthless. Your net: $130 credit minus $300 loss = -$170 loss. You are in the danger zone between $215-$225. If Apple continues toward $225, you exit here to cap the loss rather than let it grow.
Apple crashes to $183. The put spread is partially ITM: the sold put at $185 is $2 ITM ($200 loss), the bought put at $175 is OTM (worthless). Net put loss: $200. The call spread is worthless. Your net: $130 credit minus $200 loss = -$70 loss. You are in the danger zone between $175-$185. You exit here to stop the bleed.
That is the iron condor: wide profit zone, moderate premium, discipline required to close in the danger zones.
- An iron condor is selling a call spread and a put spread with wider spreads than a butterfly: more profit, wider range, lower probability.
- Max profit is the net credit collected; max loss is the spread width minus the credit.
- Profit zone is wider than a butterfly (often $30 instead of $15), reducing the precision required to succeed.
- It fits traders who want more premium than a butterfly while maintaining defined risk and a reasonable profit zone.
Pop Quiz
Two quick checks. Pick an answer and the explanation shows up right away.
You sell a $215 call for $0.75, buy a $225 call for $0.10, sell a $185 put for $0.75, and buy a $175 put for $0.10. What is your net credit and profit zone width?
You collect $75 + $75 = $150 and pay $10 + $10 = $20, so your net credit is $130 or $1.30 per share. Your profit zone is from the lower long put ($175) to the upper long call ($225), but your max profit is between the short strikes ($185 to $215), which is $30 wide.
At expiration, Apple is at $200. What is your profit or loss?
All four legs expire worthless because the stock is between the wings ($185 to $215). You keep the entire $130 net credit as profit. This is the maximum profit scenario.
Bottom Line
An iron condor is the balanced middle ground for income traders: wider profit zone than a butterfly, more premium collected, but lower probability of max profit. It is the pick for traders who want to profit from market stillness but do not want the surgical precision of a butterfly or the unlimited risk of a straddle. The wider spreads give you more room for error, and the defined risk means you can manage your position with confidence. Master the condor and you have a flexible income tool for calm markets. Reach for it when you expect a stock to stay within a moderate range, IV is elevated, and you want to harvest premium with reasonable risk.