Iron Condor Strategy: Setup, Risk Management, and Adjustments

What is an Iron Condor?

An iron condor is a four-leg options strategy that profits when the underlying stock stays within a defined price range until expiration.

It's popular among income-focused traders because it collects premium upfront with defined risk.

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The Four Legs

An iron condor is essentially a bull put spread + a bear call spread.

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Iron Condor Example

Stock: XYZ at $100 | Expiration: 30 days

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Your Risk/Reward

How max loss is calculated: Width ($5) minus credit ($2) = $3 × 100 = $300

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When to Trade Iron Condors

Iron condors work best when:

• Stock expected to stay range-bound
• Implied volatility is elevated (higher premiums)
• No major catalysts ahead (earnings, FDA decisions)

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Ideal Entry Conditions

Why 30-45 DTE? You capture theta decay while avoiding gamma risk near expiration.

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Choosing Strike Prices

Width of Strikes

Rule of thumb: $5 for stocks under $100, $10 for higher-priced stocks.

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Distance from Current Price

Target: 70-80% probability of profit.

This means placing short strikes at ~15-20 delta.

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Managing Iron Condors

When to Close

Most traders use "50% or 21 days" as their exit rule—whichever comes first.

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Adjustment Techniques

If price moves toward a short strike:

1. Roll out in time — move the entire spread to a later expiration
2. Roll away — move the tested spread further from current price
3. Close one side — exit the threatened spread, keep the other

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Iron Condor Greeks

Learn more about options Greeks to manage positions effectively.

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Risk Management

Position Sizing: The Professional Approach

The 2% Rule: Never risk more than 2% of your account on maximum loss.

Size based on max loss, not credit received. A $150 credit with $350 max loss risks $350.

When to Cut Losses

The loss-taking mindset: Take a $300 loss today rather than hoping for recovery and taking a $500 loss next week. Your job is to survive to trade another day.

The 21 DTE Rule Explained

Close all positions at 21 days to expiration, regardless of P&L.

Don't gamble for the last 10% of premium when 50% of the risk remains.

Diversification

• Trade on multiple underlyings
• Stagger expiration dates
• Vary strike widths
• Never have all condors on correlated underlyings

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Iron Condor Variations

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Building an Iron Condor in OptionsCalc

1. Enter your ticker symbol
2. Select expiration 30-45 days out
3. Add a bull put spread (sell higher put, buy lower put)
4. Add a bear call spread (sell lower call, buy higher call)
5. Review the payoff diagram

OptionsCalc shows:

• Net credit received
• Maximum profit and loss
• Breakeven points
• Net Greeks for the position

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Key Takeaways

• Profits from low movement and time decay
• Defined risk and defined reward
• Best when IV is elevated and you expect range-bound action
• Exit at 50% profit or 21 days remaining
• Size based on max loss, not credit

Frequently Asked Questions

What is the maximum profit on an iron condor?

The maximum profit on an iron condor is the net credit received when opening the trade. You keep this full amount if the stock price stays between your two short strikes at expiration.

What is the maximum loss on an iron condor?

The maximum loss is the width of one spread minus the net credit received. For example, if you have $5-wide spreads and received $2.00 credit, your max loss is $5 − $2 = $3 per share, or $300 per contract.

When should I close an iron condor?

Most traders close iron condors at 50% of maximum profit or when 21 days remain until expiration—whichever comes first. This locks in gains and avoids the increased gamma risk near expiration.

What happens if the stock moves outside my iron condor profit zone?

If the stock moves beyond one of your short strikes, you start losing money. Your loss is capped at the maximum loss (spread width minus credit received) if the stock moves past your long strike at expiration.

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Visualize Your Iron Condor

See the exact price range where you profit, plus breakevens and max loss. Enter your ticker and strikes to build your iron condor.

Build Your Iron Condor →

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Options trading involves significant risk and is not appropriate for all investors. The examples in this article are hypothetical and for educational purposes only. Consider your investment objectives and risk tolerance before trading options.

Sources and calculation assumptions

OIC: short condor (iron condor) provides background on the mechanics discussed here. Numerical examples on this page are hypothetical, generally use standard 100-share contracts, and exclude fees unless stated. Before-expiration values and probabilities depend on a model; they are not guaranteed returns.