Options income
Iron condors
Two credit spreads at once — a put spread below the market and a call spread above it — collecting both credits and paying out if the price leaves the range.
How the position is built
The steps below are the order the trade is actually placed in, and the order matters: what has to be in the account before an option can be sold is what makes the obligation coverable. None of the steps mentions a price, because there is no options-chain feed behind this site — nothing on this page is a quote, and no premium named anywhere here is one that exists in the market today.
- Sell a put spread below the current price and a call spread above it, all four legs in the same underlying and the same expiration.
- Both credits are collected up front and added together.
- The position wants the underlying to finish between the two short strikes, where all four legs expire worthless.
- Only one side can lose at expiration, so the risk is the wider of the two spreads, not the sum of both.
- Managing the position usually means closing or rolling the tested side, which costs whatever that side is then worth.
The structural facts
Every line below is a rule of how the contract works, not a forecast and not a price. None of it moves when the market moves.
- What pays you
- The combined net credit from the two spreads.
- Best case
- The total credit, kept only if the underlying finishes between the two short strikes.
- Worst case
- The wider spread's width minus the total credit, times 100. Only one side can be breached at expiration.
- Breakeven
- Two of them: the short put strike minus the total credit, and the short call strike plus the total credit.
- Capital required
- A margin account and a higher approval level. Brokers typically require margin on the larger side rather than both, since only one can lose at expiration.
- Broker approval
- Multi-leg spread trading; margin account and higher approval level.
- Assignment
- Either short leg can be assigned early, and a tested side finishing near its short strike creates pin risk — you may not learn until after the close whether you were assigned and what you now own.
Why tax gets its own box here rather than a line at the end. Premium is not taxed the way a dividend is, the treatment can change depending on whether the contract expires, is bought back or is assigned, and being assigned turns an option trade into a share sale or a share purchase with its own consequences. The note below is the general US structure, not advice, and not a substitute for asking someone about your own return.
When it hurts
This is the half of the trade that arrives later. The premium is collected once, at the start, and it is the whole of what this position can pay. The obligation behind it runs for the entire life of the contract, and the list below is what that obligation costs when the market moves through it rather than around it.
- A trend in either direction. The structure is paid to expect a range, and a market that keeps moving tests one side and then keeps going.
- A rise in volatility mid-trade makes the position expensive to close long before expiration decides anything.
- Four legs mean four spreads to cross, twice if you close early. Costs are a material share of a modest credit.
- The win rate is high by construction and says nothing about the outcome, because the losses are multiples of the credits.
- Adjusting a tested side often adds risk to the untested one, converting a defined position into something harder to describe.
Full explainer in the Learn library: Iron condors. Run your own numbers with the covered-call yield calculator.
Questions about iron condors
Why is it called an iron condor?
Can both sides lose?
Does a high probability of profit mean low risk?
Is an iron condor passive income?
Why do brokers only require margin on one side?
The other option-income strategies
Covered calls
Call premium · capped at the strike
Read →Cash-secured puts
Put premium + interest on the collateral · the premium only
Read →Put-write strategies
Index put premium + bill interest · the premium only
Read →Collar strategies
Net premium (call sold minus put bought) · capped at the call strike
Read →Credit spreads
Net credit between two option legs · the credit only
Read →Covered-call funds
Fund distribution (premium, dividends, gains, capital) · capped by the calls written inside the fund
Read →Where these trades get placed
The education arm funded by the US options exchanges and OCC, with free courses and calculators covering covered calls, cash-secured puts, assignment and exercise.
Free; run by the exchanges and the clearing house rather than a broker
Visit The Options Industry Council ↗The clearing house that stands as counterparty to every listed US equity and index option and publishes the assignment, exercise and adjustment rules.
Publishes 'Characteristics and Risks of Standardized Options', the disclosure document brokers must supply
Visit Options Clearing Corporation ↗Operates options exchanges where much US index and equity option volume trades, and publishes the methodology for its buy-write and put-write benchmark indices.
Index methodology and historical index values are published free
Visit Cboe Global Markets ↗A US brokerage built around options order entry, with per-contract pricing and position-level risk and probability displays.
Visit tastytrade ↗Brokers differ in option approval levels, assignment notification and what they pay on collateral cash. Verify with the broker before relying on anything here.