> For the complete documentation index, see [llms.txt](https://guide.laevitas.ch/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://guide.laevitas.ch/option-strategies/iron-condor.md).

# Iron Condor

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An Iron Condor is a market-neutral, defined-risk strategy that profits from positive time decay (theta). It is a combination of both a Bull Put Spread and a Bear Call Spread.
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## **Iron Condor**

**Payoff Diagram:**

<figure><img src="/files/A7DrVDLvIjQ7eWdoT2ZV" alt=""><figcaption></figcaption></figure>

**Direction Assumption:** Bi-directional

**Maximum Profit:** Equals to the dollar value(width) of the difference between the two strike prices of either the Bull Put Spread or Bear Call Spread (whichever is greater) minus the credit.\
Maximum loss occurs if the underlying is between the long put's and long call's strike price at expiration.

**Maximum Loss:** Limited to net debit paid.

**Breakeven Price:** \
• On the Put side, Short Put strike minus the net credit received.\
• On the Call side, Short Call strike plus the net credit received.

**Theta:** Passage of Time -> Negative Effect\
The net effect of time decay is negative. Should the underlying stays between the short strikes at expiration, all legs will decay to zero and expire worthless.

**Volatility:** \
If Volatility decreases -> Negative Effect.\
If Volatility increases -> Positive Effect. \
\
Iron Condors are Vega positive, meaning that if volatility increases, the position gains value.

## **Short Iron Condor**

**Payoff Diagram:**

<figure><img src="/files/6u5XUYG53psqCrsyLe4M" alt=""><figcaption></figcaption></figure>

**Direction Assumption:** Neutral

**Maximum Profit:** Limited to net credit received.

**Maximum Loss:** Limited to the dollar value(width) of the difference between the two strike prices of either the Bull Put Spread or Bear Call Spread (whichever is greater) minus the credit.\
Maximum loss occurs if the underlying is below the long put's strike price or above the long call's strike price at expiration.

**Breakeven Price:** \
• On the Put side, Short Put strike minus the net credit received.\
• On the Call side, Short Call strike plus the net credit received.

**Theta:** Passage of Time -> Positive Effect\
The net effect of time decay is positive. Should the underlying stays between the short strikes at expiration, all legs will decay to zero and expire worthless.

**Volatility:** \
If Volatility decreases -> Positive Effect.\
If Volatility increases -> Negative Effect. \
\
Short Iron Condors are Vega negative, meaning that if volatility increases, the position loses value.