The Ultimate Iron Condor Strategy Cheatsheet

The Iron Condor is a non-directional options trading strategy designed to profit when a stock or index experiences low volatility. It is a popular choice for income-focused traders because it has a defined risk and a high probability of success in the right market conditions.

An Iron Condor is built by combining two different vertical spreads: a Bull Put Spread (below the market price) and a Bear Call Spread (above the market price). You are essentially betting that the stock price will remain between your two short strikes until expiration.

Why Trade Iron Condors?

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• Profit from Neutrality: You don’t need to predict the direction of the stock. You profit if it stays within a specific range.
• Defined Risk & Profit: You know your maximum profit and maximum loss before you even enter the trade.
• Excellent for Income: It’s a strategy focused on collecting premium and benefiting from time decay.
• High Probability: When structured correctly, Iron Condors can have a very high probability of profit.

The Strategy: Building the Condor

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An Iron Condor always consists of four different option legs with the same expiration date. It’s like selling two credit spreads at once.

graph LR
    subgraph Bear Call Spread (Credit)
        A[Sell Call<br/>(Short Strike)] --> B[Buy Higher Call<br/>(Long Strike)];
    end

    subgraph Bull Put Spread (Credit)
        C[Sell Put<br/>(Short Strike)] --> D[Buy Lower Put<br/>(Long Strike)];
    end
    
    subgraph Iron Condor
        direction LR
        D -- defines --> ProfitRange(Profitable Range);
        C -- defines --> ProfitRange;
        A -- defines --> ProfitRange;
        B -- defines --> ProfitRange;
    end

    style ProfitRange fill:#2a9d8f,stroke:#333,stroke-width:2px

The Four Legs of the Condor

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Imagine a stock is trading at $100. You believe it will stay between $95 and $105 for the next month. You could structure an Iron Condor like this:

1. Sell a Put (Short Put): Sell the $95 strike put.

2. Buy a Put (Long Put): Buy the $90 strike put for protection. This creates your Bull Put Spread below the current price.

3. Sell a Call (Short Call): Sell the $105 strike call.

4. Buy a Call (Long Call): Buy the $110 strike call for protection. This creates your Bear Call Spread above the current price.

• Action: You enter all four trades simultaneously. Let’s say you receive a total net credit of $1.50 per share ($150) for placing this trade.

How You Win & Lose

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• How You Win (Maximum Profit): If the stock price closes between your two short strikes ($95 and $105) at expiration, all four options expire worthless. You get to keep the entire $150 net credit you received upfront. This is your maximum profit.

• How You Lose (Maximum Loss): The trade loses money if the stock price moves outside your profitable range.

  • The loss is limited by the long options you bought.
  • Maximum Loss: (Width of one spread - Net Credit) = ($5 - $1.50) = $3.50 per share, or $350. This occurs if the stock is below $90 or above $110 at expiration.

Breakeven Points

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You have two breakeven points at expiration:

• Lower Breakeven: Short Put Strike - Net Credit = $95 - $1.50 = $93.50
• Upper Breakeven: Short Call Strike + Net Credit = $105 + $1.50 = $106.50

As long as the stock is between $93.50 and $106.50 at expiration, the trade will be profitable.

Risk vs. Reward Profile

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Best Practices & Money Management

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1. Choose the Right Underlying: Look for stocks, ETFs, or indexes that tend to be range-bound (e.g., SPX, RUT, SPY). Avoid highly volatile or speculative stocks.
2. Select Strikes by Delta: A common method is to sell the short put and short call with a delta around 0.10 to 0.15. This corresponds to an approximate 70-80% probability of the stock staying between your short strikes.
3. Days to Expiration (DTE): The 30-60 DTE range is often considered the sweet spot for Iron Condors. It allows time decay to work in your favor without holding the position for too long.
4. Managing the Trade: Don’t wait until expiration. Many traders close their Iron Condors when they’ve captured 50% of the maximum profit. If the stock price challenges one of your short strikes, you can often “roll” the untested side closer to the money for an additional credit, or close the entire position to manage the loss.

Interactive Iron Condor Calculator

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Use the calculator below to analyze a potential Iron Condor trade.

Disclaimer: This content is for educational purposes only and is not financial advice. Options trading involves significant risk and is not suitable for all investors.