An iron condor is a neutral options strategy that profits when the underlying stock stays within a defined price range between expiration. It combines a bull put spread (selling a higher-strike put and buying a lower-strike put) with a bear call spread (selling a lower-strike call and buying a higher-strike call). The trader collects a net premium upfront and hopes all four options expire worthless.

The maximum profit is limited to the net premium received when opening the position. This occurs when the stock price stays between the two short strikes at expiration. The maximum loss occurs when the stock moves beyond either of the long strikes and equals the width of the wider spread minus the net premium received, multiplied by 100 shares per contract.

The two breakeven points define the profitable range. The lower breakeven is the higher put strike minus the net premium, and the upper breakeven is the lower call strike plus the net premium. As long as the stock remains between these two prices at expiration, the trade is profitable.

Formulas

Max Profit = Net Premium x 100 x Contracts

Max Loss = (Spread Width - Net Premium) x 100 x Contracts

Lower Breakeven = Higher Put Strike - Net Premium

Upper Breakeven = Lower Call Strike + Net Premium

Example

Suppose you sell an iron condor with put strikes at $90 and $95, call strikes at $105 and $110, and collect a net premium of $3.00 on 1 contract. Your max profit is $3.00 x 100 = $300. The spread width is $5, so the max loss is ($5 - $3) x 100 = $200. The lower breakeven is $95 - $3 = $92, and the upper breakeven is $105 + $3 = $108.