Iron Condor Return on Risk
Annualized return on an iron condor — two credit spreads (one bull put, one bear call) in equal widths around the underlying — measured as combined net credit divided by maximum one-side loss (width − credit).
When to use: Use for any symmetric iron condor where both wings have the same width. For asymmetric condors (different put-side vs call-side widths), this formula uses the larger width — the side that determines max loss.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| IRR | Annualized Return | Simple-annualized return assuming the option expires worthless | % |
| Today | Today's Date | Date the option is sold (trade date) | date |
| Expiration | Expiration Date | Date the option contract expires | date |
| NetCredit | Net Credit | Net premium received per share after debits, on a per-spread basis | $ |
| Width | Strike Width | Distance between the long and short strikes (per share) | $ |
Real-Life Examples
Example 1: $5-Wide Iron Condor
On April 29, 2026 you open a 45-day iron condor expiring June 13, 2026 with $5-wide wings on both sides, collecting $1.80 of total net credit per share.
Given
Step-by-Step
Iron condors collect credit on both sides but can only lose on one — so max risk equals one wing's width minus the total credit. A 56% yield on risk over 45 days annualizes to ~456%.
Frequently Asked Questions
Because the underlying can only finish in one of the two danger zones at expiration — either above the call wing or below the put wing, not both. The other wing expires worthless. So max loss = max(Width_call, Width_put) − NetCredit, which for a symmetric condor simplifies to Width − NetCredit.
Use the larger of the two widths in the denominator — that side dictates max loss. The formula otherwise unchanged.
Lower for the same total credit, because the underlying must stay between both short strikes. But the max-loss capital is similar to a single spread, so condor yields look similar to single-spread yields on a per-credit basis. The trade is a bet on range-bound movement.
Early assignment on either short leg (especially around dividends or tender offers), commissions on the four-leg construction, and the path-dependent risk that the underlying could whipsaw through both danger zones over the life of the trade.