The Iron Condor Strategy
Profit from low volatility and time decay with a defined-risk, high-probability strategy.
What is an Iron Condor?
An Iron Condor is a four-leg options strategy that profits when the underlying stock stays within a defined price range. It combines a Bull Put Spread (below the stock) with a Bear Call Spread (above the stock).
Traders use Iron Condors because they offer a high probability of profit, defined risk on both sides, and benefit from time decay (theta). They work best when you expect the stock to trade sideways.
Is This Strategy Right for You?
Capital Requirements
Max risk = Width of one spread − Net credit received. For a $10-wide Iron Condor with $3.20 credit, max risk is $680 per contract.
Options Approval Level
Level 3 or higher at most brokers—you need the ability to trade spreads. A margin account is typically required.
Best Suited For
- •Traders who expect low volatility or sideways movement
- •Those comfortable with multi-leg options strategies
- •Income-focused traders seeking high-probability setups
Pros and Risks
Advantages
- ✓High probability: Profits if stock stays in range
- ✓Defined risk: Know max loss upfront
- ✓Time decay works for you: Theta positive
- ✓Volatility crush benefits: Vega negative
Risks to Consider
- ⚠Limited profit: Max profit is the credit received
- ⚠Large moves hurt: Big price swings cause losses
- ⚠Management needed: May require adjustments
- ⚠Commission costs: 4 legs = 4x commissions
How It Works
Key Terms
Sell OTM Put Spread (Bull Put Spread)
Sell a put option below current price, buy a lower strike put for protection.
Short Put: 15-20 delta (higher strike)
Long Put: 5-10 delta (lower strike, the "wing")
Sell OTM Call Spread (Bear Call Spread)
Sell a call option above current price, buy a higher strike call for protection.
Short Call: 15-20 delta (lower strike)
Long Call: 5-10 delta (higher strike, the "wing")
Collect Net Credit and Wait
All legs have the same expiration. Your profit zone is between the short strikes.
Expiration: 30-45 DTE for optimal theta decay
Target: Close at 50% profit or manage at 21 DTE
Example: Selecting Your Iron Condor Strikes
| Strike | Bid | Ask | Delta | Action |
|---|---|---|---|---|
| $475 | $0.85 | $0.92 | -0.08 | |
| $480 | $1.35 | $1.42 | -0.12 | BUY |
| $485 | $2.10 | $2.18 | -0.18 | |
| $490 | $3.25 | $3.35 | -0.25 | SELL |
| $495 | $5.10 | $5.20 | -0.35 |
| Strike | Bid | Ask | Delta | Action |
|---|---|---|---|---|
| $505 | $4.85 | $4.95 | 0.35 | |
| $510 | $3.10 | $3.20 | 0.25 | SELL |
| $515 | $1.95 | $2.05 | 0.18 | |
| $520 | $1.20 | $1.28 | 0.12 | BUY |
| $525 | $0.70 | $0.78 | 0.08 |
Worked Example: SPY at $500
A complete Iron Condor with $10-wide wings.
Iron Condor Payoff at Expiration
Open Iron Condor
Buy Put
$480
Sell Put
$490
Sell Call
$510
Buy Call
$520
Stock stays between $490-$510
All Options
Expire OTM
Keep Credit
+$320
Return on Risk
47%
Stock drops to $487 (between short put & breakeven)
Put Spread
Partial Loss
Call Spread
Full Profit
Net P&L
+$20
Stock drops to $475 (below long put)
Put Spread Loss
−$1,000
Call Spread Profit
+$320
Net P&L
−$680
Key Metrics
Trade Lifecycle
Open Position
Sell 4-leg Iron Condor for net credit
- Receive premium upfront
- Set profit/loss targets
Monitor & Manage
Watch for one side being tested
- Close at 50% profit?
- Roll tested side?
Settlement
All options expire or are assigned
- Max profit if all OTM
- Partial loss if one tested
Possible Outcomes
Keep full premium = Max profit
Close early or roll for credit
Max loss = Spread width − Credit
Common Scenarios
One Side Gets Tested
Stock moves toward one of your short strikes.
Close early: Take profit at 50% or cut losses.
Roll tested side: Move to next expiration for credit.
Close untested side: Lock in that profit.
Volatility Crushes After Entry
IV drops significantly—your condor is now profitable.
Close early: Lock in profit from vega decay.
Let theta work: Hold for more time decay.
Approaching Expiration with Profit
Trade is profitable at 21 DTE—decision time.
Close position: Bank profits, avoid gamma risk.
Roll to next cycle: Open new condor for more credit.