Iron condors explained: profit zones and wing risk
An iron condor combines a put spread and a call spread, creating a bounded expiration payoff around a price range. The extra credit comes with exposure to both tails, not free profit.
By OptionsKing. Publisher and editorial methods.
What you will learn
By the end of this lesson, you should be able to:
- Calculate an iron condor's two break-evens and maximum expiration loss.
- Separate the full-credit zone from the wider any-profit zone.
- Explain why adding the second spread increases tail exposure despite a lower maximum dollar loss.
Build an iron condor from two non-overlapping credit spreads with the same expiration: puts below the stock and calls above it. At expiration only one side can be in the money at a single settlement price. Before expiration, either side can move against you, and assignment can create separate stock positions.
The trade
Chipotle (CMG) at $38.40, September 19, 45 days out, on the same chain as everything else in this series.
| Leg | Action | Price | Delta | Cash |
|---|---|---|---|---|
| $32 put | buy 1 | $0.37 | -0.111 | -$37 |
| $34 put | sell 1 | $0.64 | -0.184 | +$64 |
| $43 call | sell 1 | $0.51 | 0.205 | +$51 |
| $45 call | buy 1 | $0.23 | 0.111 | -$23 |
| Net | $0.55 | 0.021 | +$55 |
- Credit: $55.
- Width: $2 on each side.
- Maximum loss: $200 minus $55 = $145. Not $290.
- Break-evens: $33.45 and $43.55.
- Return on risk: 37.9 percent in 45 days.
- Full-credit zone at expiry: $34 to $43, a 23.4 percent band. The any-profit zone is wider, between the $33.45 and $43.55 break-evens.
Why the risk does not double
For equal-width wings, maximum expiration loss is one wing's width minus the total opening credit. If widths differ, use the wider side. This relationship assumes matching quantities and expiration, and does not cover costs or unmanaged stock exposure after one protective leg expires.
The expiration loss bound comes from mutually exclusive settlement outcomes, not from free protection.
CMG finishes at one price. If that price is below $34, the put spread loses and the call spread expires worthless. If it is above $43, the reverse. At a single expiration settlement price, both non-overlapping spreads cannot have intrinsic value. A price path can nevertheless test both sides before expiration, and assignments must be managed separately.
So you took $400 of combined width, you are exposed to $200 of it, and you were paid the credit from both sides. The two credits lower the maximum expiration loss, while the additional short side adds another loss region.
Compare the two halves separately: the call spread alone pays $28 against $172 of risk, which is 16.3 percent. The condor pays $55 against $145, which is 37.9 percent. The additional put credit reduces maximum dollar loss but introduces downside losses that the call spread alone did not have.
Where it ends up
| CMG at expiry | Result | P and L | Odds |
|---|---|---|---|
| Below $32 | put spread at full width | -$145 | 9.3% |
| $32 to $33.45 | losing on the put side | -$1 to -$145 | 6.7% |
| $33.45 to $34 | short put in the money, still ahead | +$1 to +$54 | 3.1% |
| $34 to $43 | all four expire worthless | +$55 | 61.6% |
| $43 to $43.55 | short call in the money, still ahead | +$1 to +$54 | 2.5% |
| $43.55 to $45 | losing on the call side | -$1 to -$145 | 5.4% |
| Above $45 | call spread at full width | -$145 | 11.4% |
In this illustrative model, the full-credit probability is 61.6%, the any-profit probability is 67.2%, and the maximum-loss probability is 20.7%. These are different events and should not be presented as historical frequencies.
If eight trials were independent and each had a 20.7% maximum-loss probability, the chance of no maximum loss would be (1 - 0.207)^8, about 16%. That is the arithmetic cluster H runs on a single short call and it is worse here, because there are two ways to lose.
Path risk and the cost of protection
A condor has a short strike on each side of the stock. Reaching either strike can change its value and your management decision even if the position later finishes profitable. Define what a crossing means for your plan before opening the trade.
At a single 38.4 percent volatility, CMG touches $34 at some point before expiry 37.6 percent of the time and touches $43 39.2 percent of the time. Simulating paths that can do either puts the odds of at least one side being tested at roughly three in four.
Compare that path estimate with the 61.6 percent modeled full-credit finish probability. The two numbers measure different events: a path can touch a short strike and later return between the strikes. Do not add the two touch probabilities as though they were independent; a path can reach both. Finish and touch probabilities inform different decisions.
The wings also cost more than they look. The naked strangle, short the $34 put and the $43 call, collects $115. The two long wings cost $60. That is 52.2 percent of the gross credit, spent capping both tails, and like the single spread it is priced at fair value rather than sold to you cheaply.
What actually decides an iron condor
Three things, in order.
How wide the body is. The distance between the two short strikes is the trade. $34 to $43 here is 23.4 percent of the stock price and gives a 61.6 percent chance of a clean result. Narrow it by a dollar on each side and the credit goes up and the odds go down, quickly.
Whether volatility is high enough to be worth selling. A typical centered condor starts with modest net delta and negative vega, but is not directionless: its delta changes as the stock moves. Assess the price range, implied volatility, and event risk together. Which is a measurement problem with two standard answers that disagree.
Whether the underlying can gap. The condor's worst enemy is a jump: an earnings print, a trial result, a takeover. Nothing between the strikes protects you from waking up outside them, and a known event inside the holding period requires an explicit decision about whether that exposure belongs in the strategy.
Compare the condor with a funded stock-purchase strategy
An iron condor and a cash-secured put are not competing versions of the same idea.
A cash-secured put funds a possible share purchase and leaves downside exposure after assignment. An intact condor uses long wings to limit its expiration payoff loss to $145 before costs in this example. Early assignment and an expired or closed protective leg can still leave stock exposure that requires action.
The lower capital requirement does not make a condor an interchangeable substitute for stock ownership. Compare objectives, maximum expiration loss, path exposure, costs and broker requirements. A range-based view may fit a condor, while an ownership objective may fit a funded put; neither is justified by the opening credit alone.
Spreads need a higher options approval level than covered calls or cash-secured puts at most brokers, and they are multi-leg orders: two or four legs to fill on the way in and the same on the way out. Every price here is an illustrative worked example computed off one chain, not a quote.
Check your understanding
An equal-width $5 iron condor collects $1.20 per share, with short strikes at $90 and $110. What are its break-evens and maximum expiration loss for one 100-multiplier contract set?
Show the explanation
The break-evens are $88.80 and $111.20. Maximum expiration loss is ($5 - $1.20) x 100 = $380 before costs. Maximum profit is $120 between the short strikes. The two credits reduce maximum dollar loss, but adding a second side introduces another direction in which the trade can lose.
Common questions
What is an iron condor?
Two non-overlapping credit spreads, puts below and calls above, with matching quantities and expiration. Only one side can have intrinsic value at a single expiration price, but either side can create losses or assignments before then.
Why is the maximum loss on an iron condor not the sum of both spreads?
At one expiration price, the non-overlapping wings cannot both pay intrinsic value. Use the wider wing minus total credit for the maximum intact-position expiration loss before costs; unmanaged stock exposure can change later results.
What are the odds an iron condor works?
The illustrative model gives 61.6% full-credit probability, 67.2% any-profit probability, and 20.7% maximum-loss probability. These are model events, not observed success rates or proof of real-world expected return.
Why do my iron condors feel worse than the win rate suggests?
Because there are two short strikes to be tested. Each side is touched roughly 38 percent of the time before expiry, and simulation puts the chance of at least one side being tested at about three in four, against a 61.6 percent chance of a clean result.
Sources
Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.
Keep reading
Do the math on your own trade
Every price in this article is an illustrative worked example, not a quote. Read the Learn hub for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.