Iron Condor Strategy
Sell OTM call spread + OTM put spread. Profit when stock stays in range.
What is a Iron Condor?
An Iron Condor combines a bull put spread and a bear call spread. Four legs: sell OTM call, buy further OTM call, sell OTM put, buy further OTM put. Profits when stock stays between short strikes. Defined risk version of short strangle. Very popular income strategy.
When to Use a Iron Condor
Use when expecting low volatility and range-bound movement. Best in high IV environments. Typical setup: 30-45 DTE, short strikes at 1 SD, wings 5-10 wide. Exit at 50% profit or 2x loss.
Key Formulas
- Max Profit
- Net credit × lot size
- Max Loss
- (Wing width - Net credit) × lot size
- Breakeven
- Short put strike - credit / Short call strike + credit
Example Trades
SPY IC: Sell $400P / Buy $395P / Sell $420C / Buy $425C for $1.50 credit. Max profit $150. Max loss $350.
SENSEX IC: Sell 79500 Put / Buy 79000 Put / Sell 80500 Call / Buy 81000 Call for ₹100 net credit. Max profit ₹2,000 (× 20). Max loss ₹8,000.
Common Mistakes to Avoid
- Selling too close to current price (higher risk)
- Not closing winners (theta runs out)
- Holding losers to expiration
- Too narrow a wing (not enough credit)
Related Strategies
Iron Condor FAQ
What is a Iron Condor?
An Iron Condor combines a bull put spread and a bear call spread. Four legs: sell OTM call, buy further OTM call, sell OTM put, buy further OTM put. Profits when stock stays between short strikes. Defined risk version of short strangle. Very popular income strategy.
When should I use a Iron Condor?
Use when expecting low volatility and range-bound movement. Best in high IV environments. Typical setup: 30-45 DTE, short strikes at 1 SD, wings 5-10 wide. Exit at 50% profit or 2x loss.
What is the maximum profit and loss for a Iron Condor?
Max profit: Net credit × lot size. Max loss: (Wing width - Net credit) × lot size.
What is the breakeven price for a Iron Condor?
Breakeven: Short put strike - credit / Short call strike + credit. US example: SPY IC: Sell $400P / Buy $395P / Sell $420C / Buy $425C for $1.50 credit. Max profit $150. Max loss $350. Indian-index example: SENSEX IC: Sell 79500 Put / Buy 79000 Put / Sell 80500 Call / Buy 81000 Call for ₹100 net credit. Max profit ₹2,000 (× 20). Max loss ₹8,000.
What are common mistakes when trading a Iron Condor?
Common mistakes include: Selling too close to current price (higher risk); Not closing winners (theta runs out); Holding losers to expiration; Too narrow a wing (not enough credit).
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