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Iron Condor

Sell an out-of-the-money call spread and an out-of-the-money put spread simultaneously. You profit if the stock stays within a range. This is one of the most popular income-generating strategies.

Payoff Diagram

$0B/EB/EProfitLossStock Price
Profit zoneLoss zoneBreakeven

How to Set Up This Trade

Sell an OTM call, buy a further OTM call (call spread). Sell an OTM put, buy a further OTM put (put spread). All four options share the same expiration.

Trade Setup — 4 Legs

1sellputOTM put (below current price)
2buyputFurther OTM put (below short put)
3sellcallOTM call (above current price)
4buycallFurther OTM call (above short call)

When to Use This Strategy

You expect the stock to stay within a defined range through expiration. Best in high-IV environments where premiums are rich and likely to contract.

Tips from the Pros

  • 1

    Aim for 30-45 DTE and target 1/3 the width of the strikes as credit collected.

  • 2

    Manage at 50% of max profit — don't get greedy waiting for full expiration.

  • 3

    If one side is tested, consider closing the untested side to reduce risk or rolling the tested side out in time.

Quick Reference

Max Profit

Limited to the total net credit received from both spreads.

Max Loss

Width of the wider spread minus total credit received (per share). Occurs if the stock moves past either long strike.

Breakeven

Upper breakeven: short call strike + total credit. Lower breakeven: short put strike - total credit.

Best IV Environment

High IV

Time Decay (Theta)

Helps (positive theta)

Risk Level

Medium Risk

Learn More

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