The iron condor is one of the most popular options strategies for generating income in range-bound markets. When executed properly, it offers defined risk, high probability setups, and consistent returns. Let’s break down everything you need to know.

What Is an Iron Condor?

An iron condor combines four options contracts:

• Sell an out-of-the-money (OTM) put
• Buy a further OTM put (lower strike)
• Sell an OTM call
• Buy a further OTM call (higher strike)

All contracts share the same expiration date, creating a position that profits when the underlying stays within a defined range.

The Mechanics

Position Structure

Let’s use a practical example with SPY trading at $450:

Put Spread (Short Side):

• Sell $440 put
• Buy $435 put

Call Spread (Short Side):

• Sell $460 call
• Buy $465 call

Credit Received: $200 (for the set)

Maximum Risk: $500 - $200 = $300

Break-Even Points: $438 and $462

When to Use Iron Condors

Iron condors work best in these market conditions:

1. Low to Moderate Volatility
   • IV rank below 50%
   • Stable price action expected
2. Range-Bound Markets
   • Clear support and resistance
   • Consolidation patterns
3. Post-Earnings Calm
   • After volatility crush
   • Sideways drift expected

Strike Selection Strategy

The 1 Standard Deviation Approach

Sell strikes at approximately 1 standard deviation from current price. This gives roughly 68% probability of success.

Wing Width Considerations

• Narrow wings (5 points): Higher credit, higher risk
• Wide wings (10 points): Lower credit, lower risk
• Sweet spot (5-7 points): Balanced risk/reward

Risk Management Rules

Position Sizing

Never risk more than 2-5% of your account on a single iron condor.

Exit Strategies

Profit Target: Close at 50% of max profit

• Example: $200 credit → close at $100 debit

Stop Loss: Close if position loses 2x initial credit

• Example: $200 credit → stop at $400 loss

Time-Based: Close at 21 days to expiration (DTE) if opened at 45 DTE

Adjustment Techniques

When one side is challenged:

1. Roll the untested side closer to collect more credit
2. Convert to iron butterfly by rolling tested side to ATM
3. Close the trade if technical levels break

Real-World Example

Setup (December 1):

• SPY at $450
• 45 days to expiration
• IV rank: 35%

Trade:

• Sell $440 put / Buy $435 put
• Sell $460 call / Buy $465 call
• Credit: $1.85 per share ($185 per contract)

Management:

• Target profit: $92.50 (50% of max)
• Stop loss: $370 (2x credit)

Outcome (December 22):

• SPY closes at $453
• Bought back for $0.80 debit
• Profit: $105 per contract

Common Mistakes to Avoid

1. Trading High Volatility

Selling iron condors into volatile markets exposes you to rapid moves beyond your strikes.

2. Holding to Expiration

Gamma risk explodes near expiration. Close profitable trades early.

3. Ignoring Technical Levels

Always check support/resistance before placing strikes.

4. Over-Leveraging

Multiple iron condors can seem “safe” but losses compound quickly.

Advanced Tips

Earnings Strategy

Place iron condors AFTER earnings when IV collapses but before the stock finds direction.

Index vs. Single Stock

SPX/SPY iron condors offer:

• Better liquidity
• More predictable movement
• European-style settlement (SPX)

Single stocks offer:

• Higher premiums
• More setups available
• Greater risk of big moves

Conclusion

The iron condor is an excellent strategy for consistent income when markets lack clear direction. Success requires:

• Proper market selection
• Strategic strike placement
• Disciplined risk management
• Patient trade execution

Start small, track your results, and refine your approach over time.

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