What Is an Iron Condor?
An iron condor is a non-directional options strategy that profits when the underlying stays within a defined range. You sell premium (credit) and let time decay work for you. No trend needed. No directional bet. Just range + time = profit.
Structure: Sell an out-of-the-money call spread + sell an out-of-the-money put spread. Collect net credit. If stock stays between the short strikes at expiration, you keep 100% of the premium.
It's the perfect strategy for choppy, sideways markets—which, by the way, is what markets do 70% of the time.
Iron Condor Construction (Example)
Underlying: SPY trading at $450
30 days to expiration
Call Side (Bearish Spread):
- Sell 460 call (collect premium)
- Buy 465 call (limit risk)
Put Side (Bullish Spread):
- Sell 440 put (collect premium)
- Buy 435 put (limit risk)
Net Credit Collected: $2.00 per share ($200 per contract)
Max Loss: $3.00 per share ($300) if SPY closes above 465 or below 435
Max Profit: $2.00 ($200) if SPY closes between 440-460
Breakeven Points: 438 (440 - 2) and 462 (460 + 2)
Win Range: 22 points wide (438-462). Probability of profit: ~70%.
Why Iron Condors Work
Three forces working in your favor:
- Time decay (theta): Every day that passes, options lose value. You sold the options—so theta is your friend. The closer to expiration, the faster the decay.
- High probability: By selling strikes far out of the money (20-30 delta), you give yourself a wide profit zone. Markets stay within this range most of the time.
- Defined risk: Unlike naked option selling, your loss is capped. The long options (465 call, 435 put) protect you from unlimited risk.
Selecting the Right Underlying
Not all stocks/indices work for iron condors. You need specific characteristics:
Ideal Characteristics
- High liquidity: SPY, QQQ, IWM, AAPL, MSFT. Tight bid-ask spreads = better fills.
- Range-bound price action: Check 30/60-day charts. Sideways chop = perfect.
- Moderate implied volatility: IV rank 30-70%. Too low = tiny premiums. Too high = risk of explosion.
- No major catalysts: Avoid earnings, Fed meetings, economic data releases within your cycle.
Step-by-Step Setup
The Professional Framework
1. Choose Expiration (30-45 Days Out)
This is the theta sweet spot. Decay accelerates in the final 30 days. You capture maximum premium with manageable time risk.
2. Identify Strike Prices (20-30 Delta Short Options)
Delta represents probability of the option expiring in the money. 20-25 delta = ~75-80% probability of profit.
- Sell call at 20-25 delta (above current price)
- Sell put at 20-25 delta (below current price)
3. Buy Protective Options (5-Wide Spreads)
Buy call 5 strikes above your short call. Buy put 5 strikes below your short put. This caps risk at $500 per contract (minus credit received).
4. Target Credit = 20-30% of Max Risk
If max risk is $500 (5-point spread), aim for $100-150 credit. This gives you 25-30% return on risk if held to expiration.
5. Place Order as a Single Trade
Don't leg in. Enter all four options simultaneously for net credit. Use "iron condor" order type in your broker platform.
Managing the Trade
Iron condors require active management. Set it and forget it = recipe for disaster. Here's the playbook:
Management Rules
Take Profit at 50% Max Gain
If you collected $200 credit, close at $100 (50% profit). Why? You've captured most of the theta. Remaining risk isn't worth remaining reward.
Roll When Tested (Price Approaches Short Strike)
If underlying moves toward one of your short strikes (e.g., within 5% at 21+ days to expiration):
- Close threatened side
- Roll to next expiration at same strikes (collect more credit)
- Or widen unthreatened side to collect credit
Exit at 2x Max Loss
If trade goes against you and loss reaches 200% of credit received, cut it. Don't hope. Don't pray. Exit and live to trade another day.
Let Winners Ride to 50% or 7-14 Days Before Expiration
If trade is working (profit growing), either close at 50% gain or hold until 7-14 days before expiration, then close regardless. Don't risk last-week gamma explosion.
The Greeks: What Drives Iron Condor P&L
Theta (Time Decay) — Your Best Friend
+$50-100 per day per iron condor in final 2 weeks. This is what you're selling. Every sunrise makes you money.
Delta (Directional Risk) — Neutral at Setup
Iron condor starts delta-neutral (~0). If underlying moves, one side gains delta exposure. Manage by rolling or adjusting.
Vega (Volatility Risk) — Your Enemy
Negative vega. If IV spikes (market panic), your position loses value even if price stays in range. Sell iron condors when IV is elevated, avoid when IV is historically low.
Gamma (Acceleration Risk) — Dangerous Near Expiration
In final week, gamma explodes. Small price moves cause big P&L swings. This is why pros close 7-14 days before expiration.
Real Example: SPY Iron Condor
Live Trade Breakdown
Date: Jan 10, 2026
SPY Price: $450
Expiration: Feb 14, 2026 (35 days)
IV Rank: 45% (moderate, ideal)
Trade Structure:
- Sell 465 call (24 delta)
- Buy 470 call
- Sell 435 put (22 delta)
- Buy 430 put
Credit Received: $1.50 ($150 per contract)
Max Risk: $3.50 ($350) if SPY closes above 470 or below 430
Return on Risk: $150 / $350 = 43% if held to expiration
Breakeven: 433.50 and 466.50 (30-point profit zone)
Trade Evolution:
- Week 1 (Jan 10-17): SPY chops 448-453. Theta decay = +$15. P&L: +$15
- Week 2 (Jan 18-24): SPY dips to 444 (closer to put side). Collect another +$25 theta. P&L: +$40
- Week 3 (Jan 25-31): SPY rallies to 455. Theta accelerates. Collect +$35. P&L: +$75 (50% of max gain)
- Action: Close at $0.75 (50% profit = $75 per contract). Lock in gains. Redeploy capital.
Result: +$75 profit in 21 days. 21% return on risk. Annualized: ~365%.
This is the power of time decay + probability.
Position Sizing and Portfolio Approach
Iron condors can blow up if sized wrong. Here's how professionals allocate:
Risk Management Framework
- Risk per iron condor: 2-5% of account
- Max concurrent positions: 3-5 iron condors across different underlyings/expirations
- Diversify duration: Stagger expirations (weekly, monthly, 45-day)
- Diversify underlyings: SPY + QQQ + individual stocks (avoid correlation)
- Total portfolio theta: Target +$200-500/day in theta decay across all positions
Example Portfolio ($50k account):
- 2 SPY iron condors ($700 risk each = $1,400 = 2.8%)
- 1 QQQ iron condor ($800 risk = 1.6%)
- 2 individual stock iron condors ($600 each = $1,200 = 2.4%)
- Total risk: $4,000 (8% of account)
- Total theta: +$180/day
- Monthly theta income: ~$3,600 (7.2% monthly return if all expire worthless)
When Iron Condors Fail
Iron condors are not bulletproof. They fail in these conditions:
- Trending markets: Strong trends break through your short strikes. Use momentum strategies instead.
- High volatility spikes: VIX jumps from 15 to 40 = iron condor massacre. Avoid during geopolitical crises.
- Earnings season: Binary events blow through wings. Only trade non-earning underlyings.
- Black swans: COVID, 9/11, flash crashes. These wipe out option sellers. Always use defined risk (iron condor, not naked options).
Golden rule: Never trade iron condors in high IV environments (IV rank > 70%). Wait for volatility to normalize.
Advanced Technique: The "Jade Lizard"
When volatility is skewed (call side expensive, put side cheap), pros use a variation:
Jade Lizard Setup
Structure: Sell call spread + sell naked put (or put spread with tiny width)
Credit > Call spread width = No risk to upside
Use when: Bullish bias, call IV elevated, want more credit than standard iron condor
Advanced traders only. Requires margin and volatility expertise.
The BroBillionaire Iron Condor Playbook
Monthly Routine
Week 1: Deploy New Iron Condors
- Scan for range-bound underlyings (IV rank 30-70%)
- Sell 30-45 day iron condors at 20-25 delta
- Target 20-30% return on risk
- Diversify across 3-5 positions
Week 2-3: Manage and Monitor
- Check positions daily (5 min review)
- Roll if tested (price within 5% of short strike)
- Close winners at 50% max gain
- Cut losers at 2x credit received
Week 4: Close and Redeploy
- Close all positions 7-14 days before expiration
- Don't risk gamma explosion in final week
- Roll winners to next cycle or take profit and redeploy
Final Thoughts: The Slow Grind to Wealth
Iron condors aren't sexy. They won't 10x your account in a month. But they will grind out consistent, compounding returns—month after month, year after year.
7% monthly return = 125% annually. Do that for 5 years, and you've turned $50k into $500k. No home runs. No lottery tickets. Just probability, time decay, and discipline.
The market gives nothing away for free. But when volatility is low and price action is choppy, iron condors let you collect rent while the market figures out where it's going.
Your edge: Time. Probability. Patience. The holy trinity of premium selling.