What Is an Iron Condor?

The iron condor is one of the most popular options income strategies — and for good reason. It lets you profit from a market that stays relatively still, collecting premium while your risk is capped on both sides.

The strategy involves four options on the same underlying asset and expiry:

• Sell an out-of-the-money call
• Buy a further out-of-the-money call (your upside hedge)
• Sell an out-of-the-money put
• Buy a further out-of-the-money put (your downside hedge)

You receive a net credit upfront. If the underlying stays between your two short strikes at expiry, you keep all of it.

A Concrete FTSE 100 Example

Say the FTSE 100 is trading at 7,200. You set up an iron condor:

If the FTSE 100 stays between 7,000 and 7,500 at expiry, you keep the £225 credit. Beyond 7,800 or below 6,800, your loss is capped — the hedge legs limit it to £75 (spread width minus credit).

When to Use It

The iron condor works best when:

• Implied volatility is high (you're selling expensive options)
• You expect the market to stay rangebound — not trending strongly
• You're in a low-news period with no major catalysts expected
• There are 30–60 days to expiry (theta decay accelerates in this window)

It's a poor choice when a big move is expected — like around BoE rate decisions, UK budget announcements, or US NFP reports.

Risk Management

Unlike buying options where you can only lose your premium, selling options exposes you to larger losses — which is why the hedge legs are essential.

Common adjustment tactics if the trade moves against you:

• Roll the threatened side — buy back the short strike and resell further out-of-the-money
• Close early at 50% of max profit — locking in gains reduces time at risk
• Take the loss if the underlying breaches your short strike — don't let a small loss become catastrophic

UK Tax Treatment

How you're taxed on iron condor profits depends on how you're trading:

Not all UK brokers offer listed options — see our broker comparison for who supports this strategy.