Iron Condor
Advanced30-45 days to expirationOptions
Strategy Overview
Neutral strategy profiting from low volatility using four options contracts.
How It Works
The iron condor is a neutral options strategy that profits from time decay and decreased volatility. It involves selling an OTM call spread and an OTM put spread simultaneously, creating a range where maximum profit is achieved if the stock stays between the short strikes. This strategy is ideal for stocks expected to trade sideways with declining volatility. Risk is limited to the width of the spreads minus the credit received.
Setup Rules
- 1High IV rank (>50 percentile)
- 2Liquid options with tight spreads
- 3No major events before expiration
- 4Clear support and resistance levels
- 530-45 DTE for optimal theta decay
Entry Rules
- Sell strikes at 15-20 delta
- Wings 1-2 strikes further out
- Collect 1/3 width of strikes
- Adjust for skew if present
Exit Rules
- Close at 50% max profit
- Or manage at 21 DTE
- Roll untested side if breached
- Close if loss exceeds 2x credit
Risk Management
- Size for max 2% portfolio loss
- Never risk more than collected
- Diversify across underlyings
- Avoid binary events
Advantages & Disadvantages
Advantages
- • Profit from time decay
- • High probability of profit
- • Limited risk strategy
- • Works in sideways markets
Disadvantages
- • Limited profit potential
- • Requires active management
- • Commissions can be high
- • Vulnerable to volatility expansion
Best Market Conditions
Low volatility, range-bound markets