Most options traders learn directional strategies first: buying calls when bullish, buying puts when bearish. These strategies are straightforward—you're betting on price movement. But what happens when you believe a stock won't move much? What if you think volatility is overpriced and want to profit from time decay? Enter the iron condor, a strategy designed exactly for these conditions.
An iron condor is a neutral options strategy that profits when the underlying stock stays within a specific range. It combines two credit spreads—a bull put spread and a bear call spread—to create a strategy that collects premium upfront and makes money as time passes, as long as the stock doesn't move too much in either direction. It's like being the casino: you collect the bet (premium) upfront, and you win if the gambler (the market) doesn't hit a jackpot (big move).
This guide explains how iron condors work, when to use them, how to manage risk, and the mechanics of constructing and adjusting these positions. Whether you're trading indexes like SPX, volatile stocks like TSLA, or futures options, the iron condor framework applies across markets.
What Is an Iron Condor?
An iron condor consists of four options:
- Sell an out-of-the-money (OTM) put (collect premium)
- Buy a further OTM put (define risk, create put credit spread)
- Sell an OTM call (collect premium)
- Buy a further OTM call (define risk, create call credit spread)
Example: XYZ stock is trading at $100. You believe it will stay between $90 and $110 over the next 45 days. You construct an iron condor:
- Put spread: Sell $90 put, buy $85 put (collect $1.50 premium)
- Call spread: Sell $110 call, buy $115 call (collect $1.50 premium)
- Total credit collected: $3.00 ($1.50 + $1.50)
You now have an iron condor with breakeven points at $87 and $113 ($90 strike - $3 credit = $87; $110 strike + $3 credit = $113). As long as XYZ stays between $87 and $113 at expiration, you profit. Maximum profit ($3.00 or $300 per contract) occurs if XYZ is between $90 and $110 at expiration. Maximum loss ($2.00 or $200 per contract) occurs if XYZ is below $85 or above $115 at expiration.
Why it's called an "iron condor": The strategy gets its name from its profit/loss diagram, which resembles a condor with wings spread. The "iron" prefix distinguishes it from a regular condor (which uses all calls or all puts and is a debit strategy). Iron condors use both calls and puts and are credit strategies.
How Iron Condors Work: Mechanics and Payoffs
Let's break down the mechanics explicitly so you understand exactly what happens at different stock prices.
Position Construction
Starting point: XYZ at $100 Put credit spread: Sell $90 put @ $2.00, buy $85 put @ $0.50 = Net credit $1.50 Call credit spread: Sell $110 call @ $2.00, buy $115 call @ $0.50 = Net credit $1.50 Total credit: $3.00
Payoff at Expiration
Scenario 1: Stock at $100 (stays between short strikes)
- Put spread: Both puts expire worthless = Keep full $1.50 credit
- Call spread: Both calls expire worthless = Keep full $1.50 credit
- Total profit: $3.00 (maximum profit)
Scenario 2: Stock at $92 (below put short strike, above put breakeven)
- Put spread: $90 put worth $2.00, $85 put worthless = Loss $0.50 on put spread
- Call spread: Both calls expire worthless = Keep $1.50 credit
- Total profit: $1.50 - $0.50 = $1.00
Scenario 3: Stock at $87 (at put breakeven)
- Put spread: $90 put worth $3.00, $85 put worthless = Loss $1.50 on put spread
- Call spread: Both calls expire worthless = Keep $1.50 credit
- Total profit: $1.50 - $1.50 = $0 (breakeven)
Scenario 4: Stock at $83 (below put long strike)
- Put spread: $90 put worth $7.00, $85 put worth $2.00 = Loss $5.00 on put spread
- Call spread: Both calls expire worthless = Keep $1.50 credit
- Total: $1.50 - $5.00 = -$3.50 (but capped at max loss of $2.00)
- Wait—why is the loss capped? Once the stock drops below the long put ($85), the put spread loses a fixed $5.00 ($5.00 width - $1.50 credit = $3.50 max loss). This is the defining feature of spreads: risk is defined.
Scenario 5: Stock at $113 (at call breakeven)
- Put spread: Both puts worthless = Keep $1.50 credit
- Call spread: $110 call worth $3.00, $115 call worthless = Loss $1.50 on call spread
- Total: $1.50 - $1.50 = $0 (breakeven)
Scenario 6: Stock at $117 (above call long strike)
- Put spread: Both puts worthless = Keep $1.50 credit
- Call spread: $110 call worth $7.00, $115 call worth $2.00 = Loss $5.00 on call spread
- Total: $1.50 - $5.00 = -$3.50 (capped at max loss of $2.00)
Breakeven Calculation
The iron condor has two breakeven points:
- Lower breakeven: Short put strike - Total credit = $90 - $3.00 = $87
- Upper breakeven: Short call strike + Total credit = $110 + $3.00 = $113
Visualizing the Strategy
The profit/loss diagram looks like a trapezoid:
- Flat maximum profit between $90 and $110
- Linearly declining profit from $90 to $87 (put side) and $110 to $113 (call side)
- Flat maximum loss below $85 or above $115
- Two breakeven points at $87 and $113
This shape reflects the goal: profit from stability, lose from extreme moves in either direction.
Why Trade Iron Condors?
Iron condors appeal to traders for several reasons:
Probability of Success
Well-constructed iron condors typically have a 60-80% probability of success at expiration. By selling options far out-of-the-money, you're betting that the stock won't make an extreme move—a bet that historically wins more often than it loses.
Example: SPX at 5000. You sell a 45-day iron condor with short strikes at 4750 and 5250 (5% away). Historically, SPX has a 75% chance of staying within a ±5% range over 45 days. Your iron condor has roughly those odds of success.
Profit from Time Decay
Options lose value as time passes (theta decay). Iron condors, being net short options, benefit from this decay. Every day that passes without the stock moving significantly, your position gains value—all else equal.
Theta in action: You open a 45-day iron condor collecting $3.00. After 15 days, even if the stock hasn't moved, the position might be worth $2.20. You've made $0.80 in pure theta decay, with 30 days still remaining. This is the "time is money" principle at work.
Profit from Volatility Contraction
Implied volatility (IV) is mean-reverting—periods of high volatility tend to be followed by periods of low volatility, and vice versa. Iron condors are short vega (sensitive to volatility), meaning they profit when IV drops.
Example: Earnings uncertainty drives a stock's IV to 80% (from 40% baseline). You believe this is excessive and will decline after earnings. You sell an iron condor collecting inflated premium. After earnings, IV drops to 40%, and the position profits even if the stock moves somewhat.
Defined Risk
Unlike naked options (selling calls or puts without protection), iron condors have defined maximum loss. You know exactly how much you can lose when you open the position—no surprise margin calls, no uncapped risk.
Risk comparison: Selling a naked $100 put might require $10,000 in margin and expose you to unlimited losses if the stock crashes. Selling an iron condor with the $100 put as part of a spread requires less margin and caps your loss at the spread width minus credit collected.
Flexlicity and Adjustments
Iron condors can be adjusted dynamically. If the stock moves toward your short strikes, you have multiple options:
- Roll the threatened spread to a different strike or expiration
- Hedge with delta (buy stock or options)
- Close one spread and convert to a different strategy (e.g., vertical spread)
This flexibility is valuable compared to strategies like iron butterflies where options are more limited.
When Iron Condors Make Sense
Iron condors work best in specific market conditions:
Low Volatility Environments
When VIX is low (10-20), option premiums are relatively cheap. This seems counterintuitive—why sell options when premiums are low? Because low volatility environments tend to persist, and the probability of success is high.
Strategy: In low IV, sell iron condors with wider wings (more space between short and long strikes) to reduce risk while still collecting reasonable premium.
Range-Bound Markets
When markets are choppy but trendless, oscillating within a range without clear direction, iron condors excel. Every time the market approaches the top of the range, it reverses lower; every time it approaches the bottom, it reverses higher. Your iron condor sits in the sweet spot, profiting from this indecision.
Example: SPX has been trading between 4800 and 5200 for three months. You sell an iron condor with short strikes at 4750 and 5250, betting the range persists.
High Implied Volatility
When IV is elevated (due to earnings, geopolitical events, or market uncertainty), option premiums become expensive. This is the ideal time to sell iron condors—you're collecting inflated premiums that will likely decline as uncertainty passes.
Example: A stock's IV spikes to 120% before earnings (from 40% baseline). The market is pricing in a big move. If you believe the actual move will be smaller than priced, selling an iron condor captures that volatility premium.
Mean Reversion Expectations
If a stock has just made a large move and you expect it to consolidate or partially revert, iron condors positioned around the new price can profit from the stabilisation.
Example: A stock gaps from $100 to $120 on acquisition news. You expect it to trade sideways around $120 as the market digests the news. You sell an iron condor with short strikes at $110 and $130, capitalizing on the expected range-bound trading.
Constructing an Iron Condor
When building an iron condor, several decisions determine risk/reward:
Strike Selection
The distance between your short strikes and the current stock price determines your probability of success versus the premium collected.
Narrow short strikes (close to current price):
- Collect more premium
- Higher risk of stock reaching your short strikes
- Lower probability of success
- Example: Stock at $100, sell $95 put and $105 call
Wide short strikes (far from current price):
- Collect less premium
- Lower risk of stock reaching your short strikes
- Higher probability of success
- Example: Stock at $100, sell $85 put and $115 call
Delta-based selection: Many traders choose short strikes based on delta—a 20-delta put and 20-delta call means there's roughly an 80% probability of the options expiring worthless (stock staying above the put and below the call).
Practical approach: Start with strikes 10-15% away from the current price for indexes, 15-20% away for volatile stocks. Adjust based on your risk tolerance and market conditions.
Wing Width (Distance Between Short and Long Strikes)
The width of your credit spreads determines your maximum loss.
Narrow wings ($5 wide):
- Lower maximum loss
- Collect less premium (long options cost less)
- Higher probability of the long options providing protection
- More adjustments needed if stock moves significantly
Wide wings ($10 or more):
- Higher maximum loss
- Collect more premium (long options cost more, but short strikes can be further out)
- Lower probability of the long options providing protection
- Fewer adjustments needed—wings allow more movement before max loss
Common approach: Use $10 wide wings on indexes (SPX, SPY) and $5-$10 wide wings on stocks. The wider the wings, the more breathing room you have, but the more capital at risk.
Expiration Selection
Short-term (0-30 days):
- Highest theta decay (time works fastest)
- Smaller movements in stock can threaten position
- More frequent rolling required
- Higher gamma (position sensitivity to price changes increases faster)
- Good for range-bound, low volatility markets
Medium-term (30-60 days):
- Balanced theta decay
- Moderate protection from stock movements
- Less frequent management
- Most common timeframe for iron condors
Long-term (60+ days):
- Slower theta decay
- More protection from stock movements
- Can be less efficient (collecting less premium per day held)
- Good for volatile markets or when you want "set and forget"
Practical approach: Many traders target 45-50 days to expiration. This balances theta collection with breathing room for price movement.
Delta-Neutral Construction
Ideally, start delta-neutral—your overall position sensitivity to price changes should be near zero. This means you're not biased bullish or bearish; you're betting on stability.
How to achieve delta-neutral:
- Calculate delta of each option (your broker platform shows this)
- Sum all deltas: Short put delta + Long put delta + Short call delta + Long call delta
- Adjust strikes so the sum is near zero
Example:
- Short $90 put: -20 delta
- Long $85 put: +10 delta
- Short $110 call: -20 delta
- Long $115 call: +10 delta
- Total delta: -20 + 10 - 20 + 10 = -20 (slightly bearish)
To make this delta-neutral, you could move the call strikes slightly higher (reducing negative call delta) or the put strikes slightly lower (reducing negative put delta).
Why delta-neutral matters: Starting delta-neutral ensures you're not accidentally betting on direction. You want to profit from time decay and volatility contraction, not directional moves.
The Greeks: Understanding Position Risks
To manage iron condors effectively, you need to understand how the Greeks affect your position:
Delta: Directional Risk
Delta measures your position's sensitivity to stock price changes. Positive delta means you profit if the stock rises; negative delta means you profit if it falls.
Iron condor delta: Ideally near zero (delta-neutral) when opened. As the stock moves, delta becomes positive or negative:
- Stock rallies: Short calls become more negative delta, position becomes overall negative delta (you lose as stock rises)
- Stock drops: Short puts become less negative delta (approaching -100), position becomes overall positive delta (you lose as stock falls)
Delta hedging: If delta becomes too positive or negative (say, ±50 or more), you might hedge by:
- Buying/selling stock to offset delta
- Buying/selling options to adjust delta
- Rolling one side of the condor to rebalance
Gamma: Rate of Delta Change
Gamma measures how quickly delta changes as the stock price moves. Iron condors are short gamma, meaning delta changes rapidly against you as the stock approaches your short strikes.
Why gamma matters: As the stock approaches your short $90 put, delta becomes increasingly positive. At $95, delta might be +10. At $92, delta might be +30. At $90, delta might be +50. This acceleration (gamma) is why positions can deteriorate quickly as strikes are approached.
Managing gamma: The closer you are to expiration, the higher gamma becomes. This is why many iron condor traders close positions early (at 50% profit or 21 days to expiration) rather than holding through expiration—gamma risk explodes in the final weeks.
Theta: Time Decay
Theta is your friend as an iron condor seller. You collect premium, and every day that passes erodes the value of the short options you've sold.
Theta profile: Theta isn't constant. It accelerates as expiration approaches:
- Day 1 to 20: Slow theta decay
- Day 21 to 35: Moderate theta decay
- Day 36 to expiration: Rapid theta decay
This acceleration is why iron condors become more profitable (or dangerous) near expiration—if you're still between your short strikes, theta works strongly in your favor. If you're outside, gamma works strongly against you.
Optimal theta window: Most iron condor profit is made between 45 and 21 days to expiration. Before 45 days, theta is too slow. After 21 days, gamma risk becomes too high. Many traders close positions in this window to lock in profits without betting on the final gamma roulette.
Vega: Volatility Risk
Vega measures sensitivity to changes in implied volatility. Iron condors are short vega, meaning they lose money if IV rises and make money if IV falls.
Example: You open an iron condor when VIX is 15. A geopolitical crisis pushes VIX to 25. Even if the stock hasn't moved, your iron condor loses value because all options are now more expensive (IV increased). Conversely, if VIX drops from 25 to 15 after an event, your position gains value.
Managing vega risk:
- Avoid opening iron condors when IV is historically low (it can only go up)
- Prefer opening when IV is elevated (room to drop)
- Be aware of events that spike IV: earnings, Fed meetings, macro data releases
- Consider longer-dated expirations when IV is high (more time for IV to normalize)
Managing and Adjusting Iron Condors
Open the position and your work begins. Iron condors require active management to succeed.
Profit Taking
Don't get greedy. Most successful iron condor traders take profits early.
Common profit targets:
- 50% of max profit: Collected $3.00? Close at $1.50 cost (lock in $1.50 profit)
- 70-80% of max profit: Close when you've made the majority of potential profit, avoiding tail risk
- Time-based: Close at 21 days to expiration regardless of P&L
Why close early? The risk/reward of holding to expiration is poor. You might make an extra 20-30% profit by holding, but you expose yourself to the final gamma spike where a single bad day can turn a winner into a loser.
Example: You're sitting on a $2.00 profit on a $3.00 max profit iron condor with 10 days to expiration. The stock is safely between strikes. Do you hold for the final $1.00? Many traders would close—giving up $1.00 to avoid a sudden move turning the position into a loss.
Stop Losses
Define your maximum loss upfront and stick to it.
Common stop loss approaches:
- 2x the credit: Collected $3.00? Close if the position costs $6.00 to exit (max loss of 2x initial credit)
- Percentage of account: Risk no more than 1-2% of account per position
- Strike breach: Close or adjust when stock touches a short strike
Example: You have a $100,000 account. You risk 1% per trade ($1,000). Each iron condor has max loss of $2,000. You trade 5 contracts ($10,000 max loss) but close if the position reaches $1,000 loss (10% of position size, 1% of account).
Rolling Options
When the stock moves toward your short strikes, you can "roll" the threatened side to a different strike or expiration.
Rolling down (put side): Stock drops from $100 to $92, approaching your $90 short put. You:
- Buy back the $90/$85 put spread (cost, say, $1.50)
- Sell a new $80/$75 put spread (collect, say, $0.80)
- Net cost: $0.70 (but you've moved the short strike $10 lower)
Rolling out in time: Same scenario, but instead of moving to lower strikes, you roll to a later expiration:
- Buy back the $90/$85 put spread in 30-day expiration
- Sell a new $90/$85 put spread in 60-day expiration (collecting more premium due to longer duration)
Rolling up and out (call side): Similar process when stock rallies toward short calls.
When to roll: Roll when the stock approaches but hasn't breached your short strikes. Rolling after breach is damage control, not proactive management.
Rolling cost: Rolling typically costs money (you're closing a spread that's losing and opening a new one). The question is whether the cost of rolling is less than the cost of closing the entire position.
Hedging with Stock or Options
Sometimes rolling isn't the right answer—hedging is better.
Delta hedging with stock: Your iron condor has become delta -50 (bearish). The stock keeps dropping. You buy 50 shares of stock, offsetting the negative delta. Now as the stock drops, your stock gains offset iron condor losses. You can sell the stock later if the position recovers.
Hedging with long options: Stock drops approaching your short puts. Instead of rolling, you buy a slightly OTM put. This long put gains value as the stock drops, offsetting losses on your iron condor. It's like insurance—you pay a premium (the long put cost) to cap losses.
Converting to a different spread: Stock rallies strongly, breaking through your short calls. You might:
- Buy back the call spread
- Keep the put spread (now making money as stock drops)
- Convert to a put vertical (directional bet on reversal)
Example: Stock was $100, you sold $110/$115 call spread. Stock rips to $118. Your call spread is deep ITM, losing near maximum. You buy it back for $4.80 (you collected $1.50 initially, so loss is $3.30). But your put spread ($90/$85) is now worth more (you might have collected $1.50, now worth $0.20 to close—profit $1.30). Net result: You've lost $2.00 on the position. You could hold the put spread hoping stock reverses, or close everything and move on.
The "Double, Double" Adjustment
A popular adjustment technique: When one side is threatened, double the size of the other side.
Scenario: Stock at $100, you have iron condor:
- Short $90/$85 put spread
- Short $110/$115 call spread
Stock drops to $92, threatening your puts. Instead of rolling, you:
- Add a second $110/$115 call spread (collect another $1.50)
- Now you have 2x call spreads, 1x put spread
Why this works: You're shifting your delta. By doubling the call side (which is now OTM and making money), you add positive delta to offset the negative delta from the put side. The stock has to rise more for the new call spreads to lose money.
Risk: You've increased maximum loss on the call side (now 2x spread width). But you've moved your breakeven lower, and if the stock recovers, you make money faster.
Common Mistakes to Avoid
Mistake 1: Overleveraging
Trading too many contracts relative to account size is the fastest way to blow up.
Rule of thumb: Risk no more than 1-2% of account per iron condor. If max loss is $2.00 per contract and you're willing to risk $1,000 (1% of $100,000 account), trade maximum 5 contracts.
Mistake 2: Opening Too Close to Expiration
Opening iron condors with less than 21 days to expiration is gambling, not trading. Gamma risk is too high—a single day's move can turn a profitable position into a loser.
Fix: Target 40-60 days to expiration for new positions. Give the position time to breathe.
Mistake 3: Ignoring Implied Volatility
Opening iron condors when IV is historically low means you're collecting small premium and exposed to IV expansion risk.
Fix: Check IV percentile (rank). If below 25, consider waiting or using wider strikes. If above 50, it's a good time to open (but be aware of upcoming events causing high IV).
Mistake 4: No Exit Plan
Opening a position without defining profit target, stop loss, and adjustment criteria is like driving blind.
Fix: Before opening, write down:
- Target profit (e.g., close at 50% of max profit)
- Stop loss (e.g., close at 2x credit collected)
- Adjustment triggers (e.g., roll when stock touches short strike)
Follow your rules.
Mistake 5: Holding Through Earnings or Major Events
Earnings, Fed meetings, economic data—these can cause large moves that blow through your strikes.
Fix: Close positions before major events. It's not worth the risk. If you want to hold through earnings, size smaller or use wider wings.
Mistake 6: Forgetting Assignment Risk
If your short options go deep ITM near expiration, you face assignment risk. Early exercise is rare but possible.
Fix: Close positions at 50% profit or 21 DTE, whichever comes first. Avoid holding ITM short options into expiration week.
Mistake 7: Adding to Losers
It's tempting to "double down" when a position goes against you—add more contracts at better prices to lower your breakeven.
Fix: Never add to losing iron condors. If the thesis is wrong, close the position. Adding to losers is how small losses become catastrophic.
Iron Condor Variations
Standard Iron Condor
Sell OTM put spread, sell OTM call spread, balanced around current price. Most common approach.
Unbalanced Iron Condor
Shift the iron condor slightly bullish or bearish by positioning strikes asymmetrically.
Bullish example: Stock at $100, expecting mild rise. Sell $85/$80 put spread (further away), sell $105/$110 call spread (closer). You've shifted your profit zone upward.
When to use: You have a directional bias but still want to benefit from time decay. You're selling a range, but the range is shifted in one direction.
Iron Butterfly
Tighter version of iron condor where short puts and short calls are at the same strike (typically ATM). Collects more premium but has narrower profit range.
Example: Stock at $100, sell $100 put and $100 call, buy $95 put and $105 call. Maximum profit if stock is exactly at $100 at expiration.
When to use: When you expect the stock to stay very close to current price. Higher risk/reward than iron condor.
Jade Lizard
Put-side only strategy: sell ATM put, buy OTM put (put credit spread), sell OTM call. Similar risk profile to iron condor on the downside, uncapped risk on the upside (hence need to monitor).
When to use: When you're strongly bullish but want to collect premium.
Reverse Iron Condor
Buy ATM put spread, buy ATM call spread. Net debit, profits from large moves in either direction.
When to use: Before earnings or major events when you expect volatility but are unsure of direction. Opposite of standard iron condor.
Iron Condors on Different Underlyings
Index Options (SPX, SPY, RUT)
Advantages:
- Lower volatility than individual stocks
- Tax advantages: SPX cash-settled options have favorable 60/40 tax treatment (60% long-term, 40% short-term capital gains regardless of holding period)
- Highly liquid with tight bid-ask spreads
- Diversification—no single stock news can blow up your position
Disadvantages:
- Lower premium (less volatile = less expensive options)
- Can't trade through index rebalancing or ex-dividend dates without risk
Best practices: SPX iron condors are a core strategy for many income-focused traders. The combination of lower volatility, tax efficiency, and liquidity makes them ideal for systematic selling.
Stock Options (AAPL, TSLA, etc.)
Advantages:
- Higher premium (volatility = more expensive options)
- Can leverage fundamental analysis (if you know a stock will be range-bound, sell iron condors)
- Earnings plays (sell condors after earnings when IV collapses)
Disadvantages:
- Single stock risk: earnings misses, guidance cuts, regulatory issues can cause large gaps
- Less liquid than indexes (though highly traded stocks like AAPL are fine)
- Assignment risk on dividend-paying stocks if short calls are ITM near ex-dividend
Best practices: Stick to highly liquid stocks with tight spreads. Avoid small-cap stocks or biotech where binary events are common. Consider unbalanced condors if you have a directional view.
Futures Options (/ES, /NQ, /CL)
Advantages:
- Nearly 24-hour trading (can manage positions overnight or pre-market)
- Tax advantages: futures have favorable 60/40 treatment
- Leverage: control large notional with smaller capital
Disadvantages:
- Overnight risk: markets can gap while you sleep
- Complex margin requirements
- Less suitable for beginners
Best practices: Futures iron condors are advanced strategies. Requires understanding of futures contracts, margin, and overnight risk.
Tax Considerations
Iron condor tax treatment varies by underlying and account type:
Taxable Accounts
Index options (SPX): 60/40 rule—60% long-term, 40% short-term capital gains regardless of holding period. This is favorable if you're in a high tax bracket and hold positions short-term.
Stock and ETF options (SPY, IWM, individual stocks): Standard capital gains treatment based on holding period. Positions held <1 year = short-term gains (ordinary income rate). Positions held >1 year = long-term gains (lower rates).
Mark-to-market election: If you qualify as a trader (not investor) for tax purposes, you can elect mark-to-market treatment, marking all positions to market value at year-end and treating gains as ordinary income. This eliminates wash sale rules but requires meeting strict criteria.
Retirement Accounts (IRA, Roth IRA)
No current tax consequences—gains grow tax-deferred (traditional IRA) or tax-free (Roth IRA). However:
- No margin loans: Can't use margin in IRA, affecting ability to trade iron condors (need cash to secure positions)
- Wash sale rules: Don't apply in IRA
- Uncovered (naked) options: Generally not allowed in IRAs, but iron condors are defined-risk spreads (allowed)
Wash Sale Rules
If you close an iron condor at a loss in a taxable account and re-enter a substantially identical position within 30 days, the loss is disallowed under wash sale rules.
Example: You close a SPY iron condor at a $500 loss on November 1st. On November 15th, you open another SPY iron condor with similar strikes and expiration. The $500 loss is disallowed and added to the basis of the new position.
Avoiding wash sales: Wait 30 days before re-entering similar position, trade different underlyings (SPY vs. IWM), or use different strikes/expirations that aren't "substantially identical."
Key Takeaways
The iron condor strategy profits from stability—collecting premium by selling options that expire worthless when the underlying stays within a range. By combining a bull put spread and bear call spread, you create a position with defined risk, high probability of success, and profit from time decay and volatility contraction.
Iron condors work best in specific conditions: low to moderate volatility environments, range-bound markets, and periods of elevated implied volatility that are likely to contract. They're less suitable during strong trending markets, before major events, or when implied volatility is historically low and can only expand.
Successful iron condor trading requires active management. Open the position and your work begins—monitor delta, gamma, theta, and vega as market conditions change. Take profits early (typically at 50% of max profit), define stop losses before opening, and have adjustment rules for when positions move against you. Most professional traders close positions at 21 days to expiration rather than holding through the final gamma spike.
Risk management is paramount. Trade small relative to account size (risking 1-2% per position), respect implied volatility levels, and never add to losing positions. The biggest iron condor losses come from stubbornly holding or doubling down on positions that have violated your risk parameters.
Iron condors aren't a "get rich quick" strategy—they're an income-generation strategy that, when executed systematically with proper risk management, can generate consistent returns in neutral markets. The best iron condor traders treat it like an insurance business: collect premiums, manage risk prudently, and avoid the catastrophic losses that come from betting against market extremes.
For options traders looking to expand beyond simple directional strategies, iron condors offer a path to profiting from the passage of time and the contraction of volatility—forces that are always at work in options markets, even when prices go nowhere. Mastering iron condors takes practice, but the payoff is a strategy that generates income in virtually any market condition, as long as you respect its limitations and manage risk rigorously.
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ChartMini provides options analysis, probability calculators, and position management tools—helping you construct and manage iron condors with confidence.