Iron Condor Options Calculator

The Iron Condor Strategy

An iron condor is a four-leg options strategy that profits when the underlying stays within a defined price range until expiration. You sell a put spread below the current price and a call spread above it, collecting premium on both sides.

The four legs:

Strike order: P0 < P1 < stock price < C1 < C2

Key metrics:

Net Credit = (Short Put Premium − Long Put Premium) + (Short Call Premium − Long Call Premium)

Max Profit = Net Credit (stock expires between P1 and C1)

Max Loss = Wing Width − Net Credit (where Wing Width = P1 − P0 = C2 − C1, assuming equal-width wings)

Lower Breakeven = P1 − Net Credit Upper Breakeven = C1 + Net Credit

Profit and loss zones at expiration:

Worked example

Stock at $100. Sell the 95 put for $1.40 and buy the 90 put for $0.60. Sell the 110 call for $1.20 and buy the 115 call for $0.50.

Net credit = (1.40 − 0.60) + (1.20 − 0.50) = 0.80 + 0.70 = $1.50 per share, $150 per contract Wing width = 95 − 90 = 5, and 115 − 110 = 5 Max loss = 5 − 1.50 = $3.50 per share, $350 per contract Lower breakeven = 95 − 1.50 = $93.50 Upper breakeven = 110 + 1.50 = $111.50

So the stock can fall 6.5% or rise 11.5% and the trade still does not lose money. Full profit needs it to finish anywhere from 95 to 110, a band 15 points wide.

Now the part most descriptions skip. You are risking $350 to make $150, which is a return on risk of 43%. Put another way, one maximum loss wipes out more than two maximum wins. The trade only works because the profit zone is wide enough that you collect far more often than you lose. If a condor pays 43% on risk, you need to win roughly 70% of the time just to break even across many trades, and that is before commissions on four legs.

When traders use iron condors:

Iron condors work best when a stock is expected to stay range-bound, and they are usually sold when implied volatility is elevated rather than low, because that is when the premium is worth collecting. Many traders place the short strikes about one standard deviation from the current price, with 30 to 45 days to expiration, which is where time decay runs fastest without leaving too long for something to go wrong.

Risk management:

Define your max loss before entering. Many traders close the position once the loss reaches twice the credit received, rather than holding all the way to maximum loss, and many take profit at 50% of the credit rather than waiting for the last few cents. Adjusting one side when the stock threatens a breakeven is common practice, though every adjustment adds commission and usually widens the risk.