DocsStrategies

Iron Condor

Sell an OTM put spread + an OTM call spread. Profit if the stock stays in a range. The classic high-IV income trade.

10 min readshort volatilityincomedefined risk

An iron condor is a four-legged options trade that profits when the underlying stays within a defined range through expiration. It’s the workhorse of high-IV-rank income trading: defined risk, defined reward, repeatable monthly cadence. Master this one structure and you can build an entire trading practice around it.

Outlook
Range-bound. No directional view; bet on volatility being lower than the market is pricing.
Legs
4 (long put, short put, short call, long call)
Max loss
Defined: max(put width, call width) − net credit
Max profit
Defined: net credit collected
IV preference
High. IV rank ≥ 30 minimum, ≥ 50 ideal.
Best regime
Elevated VIX, no upcoming catalyst.

The structure

An iron condor is two credit spreads on the same underlying and expiration:

  • Bull put spread on the downside: sell an OTM put, buy a further OTM put for protection.
  • Bear call spread on the upside: sell an OTM call, buy a further OTM call for protection.

The four strikes form a “condor” shape on the chain. You collect premium from both short legs and pay a smaller amount for the two long legs. The net is a credit you keep if the stock stays inside the body.

Worked example

Stock: SPY at $445. You expect the next 30 days to be quiet and IV rank is 55 (elevated). The 35 DTE iron condor at 20-delta wings looks like:

  • Short 432 put / Long 427 put — $5 wide put spread
  • Short 458 call / Long 463 call — $5 wide call spread
  • Net credit collected: $1.40 ($140 per condor)
  • Max loss: $5.00 − $1.40 = $3.60 ($360 per condor)
  • Lower breakeven: 432 − 1.40 = 430.60
  • Upper breakeven: 458 + 1.40 = 459.40
  • Profit zone: SPY between 430.60 and 459.40 at expiration
  • POP (from delta-implied probability): ~70%

At expiration, every dollar SPY closes inside the body keeps the full $140 credit. Cross either breakeven and the trade starts losing dollar-for-dollar until SPY hits the long strike, where the loss caps at $360.

When to use it

  • IV rank ≥ 30, ideally ≥ 50.You’re selling premium — you need the premium to actually be there. In a 10% IV rank environment the credit collected is too thin to justify the max loss.
  • No upcoming catalyst. Earnings, FDA decisions, fed meetings, and tariff announcements are condor poison. They cause the kind of large directional moves the structure is specifically designed not to handle.
  • 30-50 DTE. Theta decay accelerates inside this window. Closer than 30 DTE and gamma risk dominates; farther out and the time decay is too slow.
  • Liquid underlying. Four-legged trades have four times the slippage. Stick to underlyings with tight bid-ask on every strike — SPY, QQQ, IWM, AAPL, MSFT, etc. The Tradient Score down-weights illiquid setups automatically.

How Tradient ranks them

The iron condor scanner module is in backend/app/strategies/volatility.py. It walks every expiration in your DTE window, picks the short put and short call closest to your target delta, looks for matching long legs at the configured wing width, validates the strike ordering, and prices the spread. Results are sorted by probability of profit by default — but the Tradient Score layer reranks them by the composite metric.

The score weights heavily favor iron condors with:

  • POP ≥ 70% (the dominant factor at 45% weight)
  • R:R that doesn’t look stupid (≥ 0.30 is healthy for an IC)
  • IV rank ≥ 50 (income strategies get the IV-rank bonus)
  • Healthy volume across all four legs
  • Annualized return ≥ 25%

Managing the trade

The 50% rule

The most-common iron condor management rule: close the trade when you’ve captured 50% of the maximum profit. On a $1.40 condor that’s a buyback at $0.70. You give up the last 50% of theta but you also halve the time you’re exposed to the gamma cliff at expiration. Empirically this improves long-run win rate even though the average winner is smaller.

Defending a tested side

If the stock breaches one of the short strikes well before expiration, you have three options:

  • Roll the untested side closer. Buy back the unchallenged spread and resell it closer to the money, collecting more credit and shrinking the no-go zone. Works when the move was modest.
  • Roll the entire condor out and up/down. Close the condor and reopen it in a later expiration, recentered on the new spot price. Buys time but commits more capital.
  • Take the loss.If the move was driven by news (earnings beat, M&A), the thesis is dead. Don’t hope; just close it.
Don't add to losers
The siren song of condor management is “double down at the wing.” Don’t. The original premium was paid for by the model, not by your conviction; if the model was wrong, more contracts of the same trade will be more wrong.

Common mistakes

  • Selling condors in low-IV environments.The credit isn’t worth the max loss. Tradient’s regime fit will tell you when.
  • Wings too narrow. A $1 wing on a $300 stock is essentially a credit spread with extra friction. Make the wings wide enough that the credit is meaningful relative to the max loss.
  • Wings too wide. $20 wings on a $50 stock turn the trade into a naked strangle in disguise. Keep wings sane — usually 5-10% of the underlying price.
  • Holding into expiration week.Pin risk and gamma both spike in the last 5 DTE. Close at 50% and move on; don’t squeeze the last $0.10.
  • Trading earnings. See above. Different strategy, different scan, different sizing.

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