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Long iron condor
A long iron condor is a four-legged, defined-risk, neutral option strategy. You buy outer wings and sell inner spreads, collecting a net credit. The chart below shows a long iron condor with long put strike 90 at $1, short put strike 95 at $4, short call strike 105 at $4, long call strike 110 at $1, and the profit/loss diagram.
Greeks and this strategy
| Greek | How it behaves |
|---|---|
| Delta | Near zero while the stock stays between short strikes. Delta exposure grows toward wings on breakouts. |
| Theta | Positive when price remains in the profit zone; decay on short inner spreads favors the seller. |
| Gamma | Negative net in the body of the condor; breakout moves increase adverse gamma. |
| Vega | Negative. Profits when implied volatility falls; rising volatility increases the cost to close. |
Overview of long iron condor
A long iron condor combines a bull put spread and a bear call spread with a gap between the short strikes. The long outer wings cap maximum loss at the spread width minus the net credit received. Maximum profit equals the net credit and occurs if the stock closes between the short strikes at expiration. Each contract represents 100 shares of the underlying (relevant for the US market).
Market outlook for long iron condor
Traders open a long iron condor when they expect the underlying to remain within a range through expiration. The strategy collects premium from the inner short spreads while limiting risk with the long outer wings. It is a popular defined-risk alternative to selling a strangle or straddle.
How to open a long iron condor
Open the position by buying the outer put and call while selling the inner put and call spreads. All four orders are typically placed as a single complex order. Wider wings increase maximum loss but also increase the credit received from the inner spreads.
Profit/loss diagram for a long iron condor
Maximum profit equals the net credit received and occurs if the stock closes between the short strikes at expiration. Maximum loss equals the wing width minus the net credit. For example, selling $95/$105 inner spreads for $8.00 and buying $90/$110 wings for $2.00 creates a $6.00 credit on a $5.00-wide wing structure. Maximum profit is $600 per contract and maximum loss is $400 per contract.
How to enter a long iron condor
Submit a long iron condor order to your broker, specifying all four strikes, expiration, and a limit price for the net credit. The order is filled when the market provides at least your limit credit. Opening the position credits your account with the net premium minus commissions.
How to exit a long iron condor
Close the position before expiration by reversing all four legs as a single complex order. If the position can be closed for less than the original credit, you keep the difference as profit. At expiration, if the stock is beyond a short strike, one side of the condor may require assignment management.
The impact of time decay on a long iron condor
Time decay generally benefits the long iron condor when the underlying stays between the short strikes. As expiration approaches, extrinsic value declines on all four legs, which tends to reduce the cost of closing the position. Rising implied volatility can increase the spread value and work against the seller before expiration.