Long Iron Condor

A long iron condor purchases a put and a call at inner strikes and sells a lower-strike put and higher-strike call. Equal quantities, matching contract sizes, and a common underlying and expiration combine a bear put spread with a bull call spread. The position opens for a debit and can profit from a sufficiently large movement in either direction, with the short outer option capping the gain on that side.

This construction reverses the credit iron condor. Its central interval produces the greatest expiration loss rather than the greatest profit. Compared with purchasing the inner put and call alone, selling the outer options reduces the premium but removes further profit beyond the wings.

Construction and example

A hypothetical example uses SPY at $750 and options with 45 days remaining. One complete position uses a standard 100-share contract in each leg:

Trade	Strike	Premium per share
Sell one put	$700	$2.00 received
Purchase one put	$725	$6.50 paid
Purchase one call	$775	$8.50 paid
Sell one call	$800	$3.50 received

The put spread costs $4.50 per share and the call spread costs $5. The combined debit is $9.50 per share, or $950. In contract amounts, the purchased inner options cost $1,500 and the short outer options receive $550. The purchased options begin on opposite sides of SPY, so movement beyond an inner strike is required for a positive expiration payoff.

Expiration payoff

From $725 through $775 at expiration, every option has zero intrinsic value and the entire $950 debit is lost. Below $725, the purchased put gains $100 of payoff for each further $1 decline. At $715.50, its $9.50 per-share payoff recovers the combined debit and gives the lower break-even.

At $700, the purchased put has a $25 per-share payoff and the short put has none. Below $700, the short put’s obligation offsets further gains on the purchased put, keeping their difference at $25. The $2,500 spread payoff, less the $950 debit, gives a maximum profit of $1,550 on that side.

Above $775, the purchased call gains value and reaches the upper break-even at $784.50. At $800 and above, the call payoffs differ by $25 per share, producing the same $1,550 maximum profit. Only one side contributes a positive combined payoff at a particular expiration price.

The result has a flat central loss interval, improving sections within each wing, and capped profits in the two outer regions. A movement merely beyond an inner strike is not sufficient for profit; the resulting payoff must also recover the total debit paid for both spreads.

Value before expiration

Closing sells both purchased options and repurchases both short outer options. Net proceeds above $9.50 per share realize a profit. Because the remaining contracts have time value, a profitable closing transaction can occur before SPY reaches either expiration break-even.

Near the center, an increase in implied volatility can raise the purchased inner options’ values more than the short outer options’ values, increasing the condor’s net value. As SPY approaches an outer strike, the short option on that side becomes more important and offsets more of the purchased option’s gain. The net sensitivity to volatility and time therefore changes with the underlying’s location and the relative prices of the four contracts.

If SPY remains between the inner strikes as expiration approaches, the purchased options lose the remaining opportunity to generate a profitable movement. Closing can recover their net remaining value where an executable price is available, while holding through expiration in that interval loses the full debit. Even beyond a wing before expiration, the possibility of returning toward the center can keep the closing value below the final spread width.

Exercise, assignment, and execution

SPY options permit early exercise, so either short outer option can be assigned before expiration. Assignment of the $700 put purchases 100 shares at $700, while the $725 put remains a right to sell those shares at its higher strike. Assignment of the $800 call sells 100 shares at $800, while the $775 call remains a right to buy shares at its lower strike.

The purchased options remain separate until sold or exercised. Using an exercise right can resolve a share purchase or delivery, but may surrender remaining time value. Market transactions in the shares and options may recover that value when suitable prices are available. Interim share positions also have funding or delivery requirements even when the long option preserves an economic offset.

Near an outer strike at expiration, the purchased inner option can be exercised without an offsetting assignment of the short outer option. Any shares remaining after the contracts end then have their own subsequent gains and losses. A complex closing order can maintain the four-leg ratio for each filled package but does not guarantee that all requested positions will close.

Payoff formulas

Let $K_1<K_2<K_3<K_4$ be the ordered strikes. The short put is at $K_1$ , purchased put at $K_2$ , purchased call at $K_3$ , and short call at $K_4$ . For debit per share $d$ , final underlying price $S_T$ , multiplier $M$ , and $q$ complete condors:

\text{P/L}=qM\bigl[-\max(K_1-S_T,0)+\max(K_2-S_T,0)+\max(S_T-K_3,0)-\max(S_T-K_4,0)-d\bigr]

The long-option payoffs are added, short-option obligations subtracted, and the opening debit deducted. For equal widths $w=K_2-K_1=K_4-K_3$ and $0<d<w$ :

\text{Maximum loss}=qMd,\qquad \text{Maximum profit}=qM(w-d)

\text{Break-evens}=K_2-d\quad\text{and}\quad K_3+d

With unequal widths, each outer-region result is that side’s width less the debit, multiplied by $qM$ . A root lies within the corresponding wing only when the debit does not exceed its width. Equality makes the entire outer region break even; a larger debit means that side cannot earn an expiration profit. The wider wing determines the greatest attainable result, while the central interval continues to lose the debit.