Iron Condor
Sell an OTM call spread and OTM put spread to profit from low volatility.
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What Is a Iron Condor?
An iron condor is a four-leg options strategy that combines a bull put spread (below the market) and a bear call spread (above the market) in the same expiration. You collect premium from both sides and profit as long as the stock stays within the range defined by your two short strikes at expiration. If the stock remains between the short put strike and the short call strike through expiration, both spreads expire worthless and you keep the entire net credit. The iron condor is the quintessential "sell volatility" trade — it profits from the stock doing nothing dramatic, and from implied volatility falling after you enter. It is widely used on major indices (SPX, SPY, RUT) where mean reversion tendencies make range-bound trading more systematic.
When to Use a Iron Condor
Use an iron condor in high-IV, low-momentum environments where the stock or index is likely to remain in a range. High implied volatility (IVR above 30–40%) is important because it means you collect more premium for the same strike distance, improving your credit and risk-reward ratio. Indices are better candidates than individual stocks because single stocks have earnings risk, M&A risk, and sector-specific catalysts that can cause sudden large moves. Avoid iron condors before known binary events on your underlying. The strategy works best after a period of elevated volatility that is now settling — you sell IV while it is high and profit as it contracts.
Trade Structure
Sell an OTM put, buy a further OTM put (put spread — the bullish side), and simultaneously sell an OTM call, buy a further OTM call (call spread — the bearish side), all in the same expiration. Typical setup: 45 DTE, with short strikes at 1 standard deviation OTM on each side. Both spreads should have the same width for a symmetric condor, though unequal widths are possible for a directional tilt.
Max Profit
Total net credit received × 100. This is earned in full if the stock closes between the two short strikes at expiration. For example, selling an iron condor with a $2.00 total credit earns $200 per contract if the stock stays in range. You cannot earn more than this regardless of how favorably the stock behaves.
Max Loss
(Width of one spread − total credit received) × 100. Assuming equal-width spreads, if one side is breached at expiration, you lose the spread width minus the credit collected. For example, a 5-point spread collected for $2.00 total has a max loss of ($5 − $2) × 100 = $300 per contract. Only one side can lose (the stock can't be above the short call AND below the short put simultaneously), so the total risk is defined.
Breakeven
Two breakevens — upper and lower. Lower breakeven: short put strike minus total credit received per share. Upper breakeven: short call strike plus total credit received per share. The stock must stay within this range at expiration for the trade to be profitable. The total credit widens the profitable range beyond just the two short strikes.
Greeks Profile
Theta is strongly positive — the iron condor is a pure premium-selling strategy and time decay is your primary profit driver. Every day that passes without the stock moving outside your range adds to your paper profit. Delta is near zero (for a symmetric condor centered on the current stock price) — you have no strong directional bias. Vega is negative — a decline in implied volatility after entry benefits the position, as all four options become cheaper and you can close the spread for a profit. Gamma is negative — sharp, fast moves near your short strikes hurt the position, especially within the final two weeks before expiration.
Iron Condor Trading Tips
- Place short strikes at 1 standard deviation OTM (~84% probability of expiring worthless) for a high-probability trade with meaningful credit.
- Sell iron condors at 45 DTE and close at 21 DTE or at 50% of max profit — whichever comes first. This is the standard TastyTrade framework backed by research.
- Manage the losing side: if the stock moves through one short strike, you can close just the threatened spread (a "one-sided adjustment") rather than closing the full condor.
- SPY and SPX iron condors are the most popular because indices mean-revert more reliably than individual stocks.
- Never enter an iron condor the week before a major index decision or Fed announcement — a gap through a strike can cause an outsized loss.
- Track your win rate and average profit per trade over time — iron condors have a high win rate but occasional large losses that need to be factored into expected value.
- The "put side" typically collects more premium than the call side on indices due to put skew — you may be able to tighten the call spread or widen the put spread to equalize premium.
- Rolling out in time (buying back the current condor and selling a new one in a later expiration) can rescue a threatened position while collecting additional credit.