Iron condor is a neutral options strategy that profits from low volatility and range-bound price action. It combines a bull put spread (below the market) and a bear call spread (above the market). You collect premium when opening the trade and keep it if the stock stays between your short strikes at expiration.
- Four-legged neutral strategy
- Max profit = credit received; Max loss = defined
- Profits from time decay and IV decrease
How Iron Condors Work
Iron condor profits from range-bound movement:
Iron Condor Structure:
Stock at $100
Buy 1 Put at $90 (protection)
Sell 1 Put at $95 (collect premium)
Sell 1 Call at $105 (collect premium)
Buy 1 Call at $110 (protection)
Credit Received: $2.00
Profit Zone: $95 to $105
Max Profit: $2.00 (if stock stays in zone)
Max Loss: $5 spread - $2 credit = $3.00
Max Loss Max Profit Max Loss
| ______|______ |
________| / \ |________
$90 $95 $105 $110
Quick Reference: Iron Condor
| Outcome | Stock at Expiry | Result |
|---|---|---|
| Max Profit | $95-$105 | +$2.00 |
| Breakeven Up | $107 | $0 |
| Breakeven Down | $93 | $0 |
| Max Loss Up | Above $110 | -$3.00 |
| Max Loss Down | Below $90 | -$3.00 |
Example: Trading Iron Condor
High IV Iron Condor:
| Leg | Strike | Premium |
|---|---|---|
| Buy Put | $90 | -$0.50 |
| Sell Put | $95 | +$1.25 |
| Sell Call | $105 | +$1.50 |
| Buy Call | $110 | -$0.75 |
| Net Credit | $1.50 |
Max profit: $1.50. Max loss: $3.50. Risk/Reward: 2.3:1.
An iron condor sells an OTM put spread and call spread to collect premium. You profit if the stock stays between your short strikes. Max loss is limited by the long options. Best used when expecting range-bound movement and high IV.
Iron Condor Greeks
| Greek | Iron Condor |
|---|---|
| Delta | Near zero (neutral) |
| Gamma | Negative (hurts if stock moves) |
| Theta | Positive (time decay helps) |
| Vega | Negative (IV drop helps) |
When to Trade Iron Condors
Good Conditions
- High IV rank (more premium)
- Range-bound market expected
- No major upcoming events
- 30-45 days to expiration
Bad Conditions
- Low IV (not enough premium)
- Before earnings/events
- Strong trending market
- Very close to expiration
Iron Condor Management
Take Profits Early
Close at 50% of max profit. Don’t wait for expiration.
Adjust If Tested
If price approaches short strike, consider rolling or closing.
Cut Losses
Close if loss reaches 2× credit received.
Common Mistakes
-
Too narrow wings – Higher max profit but lower win rate and bigger losses.
-
Ignoring IV – Selling in low IV collects less premium for same risk.
-
Holding to expiration – Take profits early. Gamma risk increases.
-
Before earnings – Iron condors get destroyed by big moves.
How JournalPlus Tracks Iron Condors
JournalPlus logs all four legs of iron condors, tracking credit received, management decisions, and helping you optimize your strike selection and timing.
