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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.

Option premiums Semi-passive Short put spread below + short call spread above, same expiration.
Premium is not interest
Premium is not interest. An option premium is a payment for taking on an obligation, not a return on money lent, and nothing about it is promised, scheduled or insured. Losses can far exceed the income received: the premium is collected once, while the position stays exposed for the whole life of the trade. Upside is capped — every call you write hands the gain above the strike to somebody else. US equity options are American-style, so assignment can arrive at any time, and it clusters the day before an ex-dividend date when the dividend is worth more to the buyer than the option's remaining time value. A cash-secured put is an obligation to buy a falling stock at yesterday's price: if the shares collapse you still buy at the strike, and the premium covers only the first part of the fall.

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.

  1. 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.
  2. Both credits are collected up front and added together.
  3. The position wants the underlying to finish between the two short strikes, where all four legs expire worthless.
  4. Only one side can lose at expiration, so the risk is the wider of the two spreads, not the sum of both.
  5. 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.

US tax treatment
US: four legs mean four separately reported transactions, and the straddle rules can defer a loss on one leg while a related gain leg stays open. Single-stock condors are generally short-term; broad-based index condors may be Section 1256 contracts.

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.

The failure modes, in plain terms
  • 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?
Condor describes the four-strike shape of the payoff, and iron indicates that it is built from both puts and calls and opened for a credit rather than a debit.
Can both sides lose?
Not at expiration — the underlying can only settle on one side of the range, so only one spread can be in the money at the end. Both sides can certainly lose value at the same time before expiration, which is what makes an early exit expensive.
Does a high probability of profit mean low risk?
No. A structure that wins often and loses several times the credit when it loses can have exactly the same expected result as one that wins rarely. Probability of profit and size of loss are two separate facts and both belong in the arithmetic.
Is an iron condor passive income?
It is not passive in any ordinary sense. Positions have to be opened, monitored, adjusted or closed on a schedule set by expiration dates, and it requires broker approval that not every account will be granted.
Why do brokers only require margin on one side?
Because at expiration the underlying can finish on only one side of the range, so only one of the two spreads can be in the money. Most brokers therefore hold the wider side's maximum loss rather than the sum of both, which is what makes the position capital-efficient and easy to over-size.

The other option-income strategies

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Where these trades get placed

The Options Industry Council

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 ↗
Options Clearing Corporation

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 ↗
Cboe Global Markets

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 ↗
tastytrade

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.

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