What is an Iron Condor? (Profiting From a Flat Market)
The iron condor is a neutral strategy that wins when stocks stay boring—perfect for range-bound markets.
Quick Summary
An Iron Condor combines a call credit spread and a put credit spread on the same stock. You collect premium upfront and profit if the stock stays within your chosen range at expiration.
In previous posts, we explored the Straddle and Strangle—strategies designed for chaos. They profit when the market explodes in either direction.
But what if you expect the exact opposite?
What if you think the market is going to be completely boring? What if you believe a stable stock is just going to drift sideways for the next month?
Two Opposite Views
Different expectations call for different strategies
EXPECTING CHAOS
Straddle / Strangle
Buy volatility
EXPECTING CALM
Iron Condor
Sell volatility
If you don't want to buy volatility, you can sell it. Enter the Iron Condor.
The Definition: What is an Iron Condor?
THE STRATEGY
Sell a Call Credit Spread + Sell a Put Credit Spread = Same Expiration, Four Legs
An Iron Condor consists of four different options contracts:
The Four Legs
The goal is simple: You're building a "box" around the stock price. As long as the stock stays inside the box until expiration, you keep the premium you collected.
How It Works: The "Profit Plateau"
The Iron Condor creates a unique payout shape that looks like a plateau.
Iron Condor Payout Diagram
Profit if stock stays in the middle range
Long Put
$85
Short Put
$90
Stock
$100
Short Call
$110
Long Call
$115
A Real-World Example
Current Stock Price
$100
Call Credit Spread (Bear)
Sell $110 Call
Buy $115 Call
Betting stock won't exceed $110
Put Credit Spread (Bull)
Sell $90 Put
Buy $85 Put
Betting stock won't fall below $90
Total Net Credit Received
$2.00 ($200 cash)
The Possible Outcomes
At expiration: Stock is trading at $102
Stock is below your short call ($110) → Call spread expires worthless
Stock is above your short put ($90) → Put spread expires worthless
Result: All four options expire worthless. You keep the entire $200 premium.
At expiration: Stock rallies to $120
Your Put side expires worthless (Good)
Your Call side is deep In-The-Money (Bad)
But your $115 Call protection caps the damage
Result: Max loss = Spread width ($5) − Credit ($2) = $300 loss
Why is it Called "Iron"?
In options trading, the word "Iron" usually means you're combining both a Put Spread and a Call Spread into one position.
- Condor: A strategy with four legs using all-OTM strikes
- Iron Condor: The combination that pays you a credit upfront
When Should You Use an Iron Condor?
This strategy is designed for high probability, low volatility environments.
Ideal Situations
After a company reports, the stock often settles into a range. IV crushes and the stock drifts sideways.
Summer months or holiday weeks when volume is low and stocks rarely make big moves.
Mature, stable companies that historically trade within predictable price ranges.
The Trade-Off: High Win Rate, Lower Payoff
The Iron Condor is not a "get rich quick" trade. It's a probability game.
The Numbers Game
WIN PROBABILITY
~70-80%
Depends on width of strikes
TYPICAL RISK/REWARD
Risk $3 to Make $1
Lower returns per trade
You're playing the role of the "House." You're betting against traders who think the stock will crash or rocket. Most of the time, those traders lose, and you keep their premium. But occasionally, they hit the jackpot—and you have to pay up. The math works in your favor over many trades, but any single trade can still lose.
Frequently Asked Questions
Summary
The Iron Condor allows you to profit from the passage of time (Theta Decay) and the contraction of fear (Vega drop).
It requires patience. You don't need to predict where the stock is going—you just need to predict where it isn't going. If you can successfully identify a range that the stock won't break, the Iron Condor pays you to wait.
The Iron Condor Philosophy: Build a box around the stock. Collect premium. Wait for nothing to happen. The most boring outcome is the most profitable one.
Important: While Iron Condors have high win rates, the losses when wrong can be larger than the wins. A few losing trades can wipe out many small wins. Always define your risk before entering and never risk more than you can afford to lose.
