Condor Spread vs. Iron Condor: What's the Difference?

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Contributor, Benzinga
June 6, 2023

Condors are versatile options trading strategies that provide more opportunities to profit. An options trader can set up a condor or iron condor to profit from a sideways market or volatile one. Understanding how both types of condors work can make you a better options trader, especially if you know the subtleties between condors and iron condors. 

What Are Options

Options are derivatives that are tied to underlying stocks. SPY options derive their value in part from the SPY ETF. The expiration date and difference between the share price and strike price also impact the option’s value. Some people trade options to open up more possibilities. Condor spreads are one of the strategies you can use with options trading that you cannot capitalize on with traditional stock trading.

What Is a Condor Spread

A condor spread is an options trading strategy that involves four options. A condor setup either has four calls or four puts and can benefit from sharp price movements or a flat market. A long condor trader hopes for very little price movement, while a short condor trader wants sharp price movement in one direction. 

How Does the Condor Spread Work

A condor spread has four options of the same type: four calls or four puts. Each of these options has different strike prices but the same expiration date. Condors limit your gains and losses. You won’t achieve groundbreaking returns like you may have seen with high-risk, high-reward options trades, but you can cap your losses. Minimizing losses helps investors with less risk tolerance and makes it easier to recover from losses.

A long condor with calls has two long calls with the highest and lowest strike prices, along with two short calls with different strike prices in the middle. 

Best Time to Enter Condor Spread

The best timing for condor spreads depends on the trader, the market and risk tolerance. It may be a good idea to have expiration dates that are at least 30 days into the future. These expiration dates result in higher premiums for traders who receive them (short condor traders). If you enter a long condor trade and pay the premium, you will have more time for your prediction to play out.

You don’t have to hold onto a condor until expiration. Some traders wait for a sufficient gain before exiting the position. Picking a further out expiration date will result in less fluctuation with option prices.

Pros and Cons of Condor Spreads

These are some of the advantages of using an options broker to trade condor spreads:

  • You can profit from a sideways market.
  • Condors minimize your potential losses.
  • Traders can decide whether they want to receive a credit or debit and set their trade appropriately.

While condors have several perks, they aren't perfect. Here are some disadvantages associated with condor spreads:

  • Your gains are limited.
  • One of the options in your condor can get exercised early.
  • Your trading fees will go up because you are trading more options contracts. Some options brokers have a flat fee regardless of how many options you trade in one order, which can cushion this cost for traders with large positions.

Example of Using a Condor Spread

Options traders can choose from four types of iron condor spreads, but this example will highlight a long iron condor spread with calls. For this setup, the trader buys two calls with the highest and lowest strike prices for the spread. The sold calls in the middle have different strike prices that fall in between the long call strike prices. 

The stock price should be in between the strike prices of the sold calls. Here’s how a condor can work in practice for a stock valued at $97 per share:

  • Buy 1 call with a $90 strike price for an $8 premium (debit)
  • Sell 1 call at $95 for a $2.50 premium (credit)
  • Sell 1 call at $100 for a $1 premium (credit)
  • Buy 1 call with a $105 strike price for a 50-cent premium (debit)

The trade resulted in an $8.50 debit and $3.50 credit. The end result is a $5 debit. The max profit occurs if the stock stays in between the strike prices of the shorted calls, while the max loss occurs if the stock falls below the lowest strike price or above the highest strike price.

You can calculate the max gain by deducting the premium and long call with the highest strike price from the long call with the lowest strike price. Here’s the math for this example:

$8 premium for call with $90 strike price - 50-cent premium for $105 strike price long call - $5 debit to initiate the trade

$8 - $0.50 - $5 = $3.50 max profit.

The max loss is the net debit which is $5 in this example.

What Is an Iron Condor

An iron condor is an options trading strategy that involves two calls and two puts. Just like a regular condor, iron condors allow traders to benefit from sideways markets. A short iron condor lets the trader benefit if the stock’s price moves sharply in one direction. Long iron condors result in a net debit that the trader must pay, while short iron condors yield net credits that the trader receives as the premium.

How Does the Iron Condor Work

Iron condors consist of a long call, short call, long put and short put. Each of these options has different strike prices but the same expiration date. 

For long iron condors, the short put has a lower strike price than the long put, and the long call has a lower strike price than the short call. The long call has a higher strike price than the long put.

Conversely, a short iron condor features a short put with a higher strike price than the long put and a long call with a higher price than the short call. Both calls have higher strike prices than the puts, a commonality between short and long iron condors.

Best Time to Iron Condor

Just like regular condors, it’s best to initiate an iron condor with at least 30 days until expiration. This window gives you more time to react to price movements and test your investment thesis. A trader can realize higher potential profits with further expiration dates.

Pros and Cons of Iron Condors

Iron condors present the same advantages as regular condors:

  • Iron condors minimize your losses.
  • This options trading strategy allows people to profit from sideways markets.
  • The trader can receive a premium from the trade.

Iron condors give options traders more versatility, but it is important to consider their disadvantages before getting started.

  • Iron condors result in more fees because you have to trade four options to initiate one iron condor.
  • Iron condors have limited upside.
  • One of the options in your iron condor can get exercised earlier, which would change the risk and reward dynamic.

Example of Using an Iron Condor

Iron condors have two different types of options that fuel the strategy: calls and puts. This distinction makes it different from its predecessor’s setup, but the objective remains the same: Limit your downside and potentially capitalize on the available upside.

For this example, assume a stock currently trades at $48 per share. These are the options a trader can open to initiate a long iron condor:

  • Sell 1 put with a $40 strike price for a 50-cent premium (credit)
  • Buy 1 put with a $45 strike price for a $1.50 premium (debit)
  • Buy 1 call with a $50 strike price for a $2 premium (debit)
  • Sell 1 call with a $55 strike price for a $1 premium (credit)

The calls and puts are often out of the money for an iron condor setup. Because of this rule, the strike prices for the calls are always higher than the strike prices of the puts. The further out-of-the-money option is the shorted option which results in a net debit.

The net debit or credit is always the difference between the total debits and total credits. This example yields a net debit of $2 because the total debits ($3.50) exceed the total credits ($1.50) by $2. This net debit represents the maximum loss from the trade.

The low breakeven point is the difference between the strike price of the long put and net debit. In this example, the low breakeven price is $45 - $2 = $43 per share.

The high breakeven point is the sum of the strike price of the long call and net debit. In this example, the high breakeven price is $50 + $2 = $52 per share.

The max gain is the difference between the put strike prices, less the premium paid. In this example, the max gain is $3 (45 - 40 - 2 = $3).

Growing Your Portfolio with Condors

Condors and iron condors give traders more choices in how they approach the stock market and profit from price movements. Traders can set up condors and iron condors to profit from sideways markets or sharp price movements. Every investor should consider their risk tolerance before getting started, but you have more control over your maximum loss. You can decide on the proper balance of limited downside and upside.

Frequently Asked Questions


Is iron condor a spread?


Yes, an iron condor is a spread.


What are the different types of condor spreads?


Traders can choose from four condor spreads with long calls, long puts, short calls and short puts.


How do you turn spread into iron condor?


If you have a call spread, you would have to initiate a put spread to create an iron condor. If you have a put spread, you have to initiate a call spread.