Iron Condor Starter Plan: Strike Selection, Entry Rules, and Risk Management
Education only. Options involve risk. Not investment advice.
TL;DR
An iron condor combines a bull put spread below the current price and a bear call spread above it, both on the same underlying and expiration. You collect premium from both sides and profit if the stock stays within a range. Max profit is the total credit received. Max loss is the width of the wider spread minus that credit. Iron condors work best in neutral, low-volatility environments where you expect the stock to go nowhere fast.
Introduction: What Is an Iron Condor?
An iron condor is four options working together — two credit spreads, one on each side of the current stock price.
On the put side, you sell an out-of-the-money put and buy a further out-of-the-money put for protection. This is your bull put spread, and it profits if the stock stays above the short put strike.
On the call side, you sell an out-of-the-money call and buy a further out-of-the-money call for protection. This is your bear call spread, and it profits if the stock stays below the short call strike.
When you combine them, you create a “profit zone” between your two short strikes. If the stock finishes anywhere in that zone at expiration, both spreads expire worthless and you keep the full credit.
The trade is directionally neutral. You’re not betting the stock goes up or down — you’re betting it doesn’t move much at all.
Iron Condor Structure
| Leg | Action | Purpose |
|---|---|---|
| Long Put (lowest strike) | Buy | Protection for put spread |
| Short Put | Sell | Collect premium, define lower profit boundary |
| Short Call | Sell | Collect premium, define upper profit boundary |
| Long Call (highest strike) | Buy | Protection for call spread |
Entry Rules: When and How to Initiate Iron Condor Trades
Timing your entries correctly is crucial for iron condor success. The strategy works best under specific market conditions.
Ideal Entry Conditions
Low to moderate implied volatility (IV rank 20-50). Counterintuitively, you don’t want extremely high IV for iron condors. While high IV means more premium, it also means the market expects bigger moves — exactly what hurts iron condors. Moderate IV gives you reasonable premium without excessive move expectations.
Range-bound price action. Look for stocks or indexes that have been consolidating. If the underlying has been trending hard in one direction, it’s more likely to continue than to suddenly reverse.
No major catalysts ahead. Avoid earnings, FOMC announcements, and other binary events. Gap risk is the iron condor’s worst enemy.
30-45 days to expiration. This is the theta decay sweet spot. You capture accelerating time decay without the gamma risk of the final week.
Entry Timing Techniques
Post-earnings entry: Enter after earnings when IV has crushed and the stock is digesting the news. Premium is lower but so is the risk of unexpected moves.
Technical range confirmation: Enter when the stock is near the middle of a established range, bouncing between support and resistance.
VIX-based timing: For index iron condors (SPY, QQQ), consider IV rank rather than absolute VIX level. IV rank above 30 but below 60 is often ideal.
Entry Checklist
Before entering an iron condor, confirm:
- IV rank is 20-50 (not extreme)
- No earnings or major events within the trade window
- Price is range-bound, not trending
- You have 30-45 days to expiration
- Credit collected is at least 25-33% of spread width
Strike Selection Methodology
Strike selection determines your probability of profit, premium collected, and risk-reward ratio. This is the most important decision in iron condor trading.
Using Delta for Strike Selection
Delta approximates probability, making it the primary tool for strike selection:
| Short Strike Delta | Probability of Profit | Premium Level |
|---|---|---|
| 10 delta | ~90% | Low |
| 15 delta | ~85% | Low-Moderate |
| 20 delta | ~80% | Moderate |
| 25 delta | ~75% | Moderate-High |
| 30 delta | ~70% | High |
Beginner recommendation: Start with 16-20 delta on both short strikes. This gives you approximately 80% probability of profit while still collecting meaningful premium.
Advanced approach: Adjust delta based on IV. In higher IV environments, you can go further out (lower delta) because premium is richer. In lower IV, you may need to sell closer strikes (higher delta) to collect enough premium.
Iron Condor Strike Selection Example
SPY trading at $450 with 30 days to expiration:
Put side (bull put spread):
- Sell $435 put (20 delta) for $1.20
- Buy $430 put (15 delta) for $0.80
- Put spread credit: $0.40
Call side (bear call spread):
- Sell $465 call (20 delta) for $1.00
- Buy $470 call (15 delta) for $0.60
- Call spread credit: $0.40
Total iron condor credit: $0.80 ($80 per contract)
Profit zone: $435 to $465 (30-point range)
Breakevens: $434.20 (lower) and $465.80 (upper)
Symmetrical vs. Asymmetrical Strikes
Symmetrical condors have equal distance from the current price on both sides. These are neutral and benefit from the stock staying near the current price.
Asymmetrical condors have one side closer to the current price. Use these when you have a slight directional bias — closer to the side you think is less likely to be breached.
Setting Spread Widths for Balance of Risk and Reward
The width of your spreads (distance between short and long strikes) determines your max loss and capital requirements.
Spread Width Guidelines
| Width | Max Risk per Side | Best For |
|---|---|---|
| $2.50-$5 | $170-$420 | Small accounts, beginners |
| $5-$10 | $420-$920 | Most retail traders |
| $10-$20 | $920-$1,920 | Larger accounts |
Important: Your max loss is the width of one spread (not both) minus the total credit received. Only one side can lose — the stock can’t be both above your call spread AND below your put spread at expiration.
Width Selection Factors
Capital efficiency: Narrower spreads tie up less capital, allowing more diversification.
Premium collected: Wider spreads collect more gross premium, but the percentage return is often similar.
Error margin: Wider spreads give you more room for the long option to have value if the short is breached.
Recommended Approach
For iron condors, consistent widths on both sides simplify management. A common setup is $5-wide spreads on both sides, giving you a max loss of approximately $4.20-$4.50 per condor (depending on credit received).
Credit-to-Width Ratio
Target a total credit equal to 20-33% of one spread’s width:
- $5-wide spreads: Target $1.00-$1.65 total credit
- $10-wide spreads: Target $2.00-$3.30 total credit
This ratio ensures your max profit is meaningful relative to your max risk.
Risk Management Techniques to Protect Capital
Iron condors have defined risk, but that doesn’t mean you should take max losses. Active risk management improves long-term results.
Position Sizing
2% rule: Risk no more than 2% of your account on any single iron condor.
Calculation: If your account is $50,000 and max loss per condor is $400, you can trade up to 2.5 contracts ($1,000 max loss = 2% of $50,000).
Diversification: Don’t put all your iron condors on the same underlying. Spread across different stocks, sectors, or indexes to reduce correlation risk.
Stop Loss Approaches
Credit-based stop: Close if the position costs 2× the credit received to close. If you collected $80, close if it costs $160 to buy back.
Delta-based stop: Close if either short option reaches 35-40 delta. This means the stock has moved significantly toward your short strike.
Percentage-based stop: Close if unrealized loss reaches 50% of max loss. For a condor with $400 max loss, close at $200 loss.
Adjustment Strategies
Rolling the untested side: If one side is threatened, you can close the untested (safe) side for a small profit and leave the threatened side. This reduces your overall position but doesn’t fix the threatened side.
Rolling out in time: Close the entire condor and open a new one at a later expiration. This buys time but usually costs money.
Closing the threatened spread: Accept the loss on the threatened side, keep the profit on the safe side. Net loss is smaller than max loss.
Important: Adjustments are not magic fixes. They usually trade one type of risk for another or extend your time in the trade. Sometimes the best adjustment is simply closing for a loss.
Exit Strategies for Locking Profits and Limiting Losses
Knowing when and how to exit is just as important as knowing when to enter.
Profit-Taking Rules
50% profit target: This is the most common approach. If you collected $80, close when the condor can be bought back for $40. You’ve captured half your max profit with the majority of risk removed.
75% profit target: More aggressive, captures more credit but holds through more risk. Use this when the condor is decaying smoothly with no threats.
Time-based exit: Close at 21 days to expiration regardless of profit level. This avoids gamma risk in the final weeks.
Why Take Profits Early?
The math favors early profit-taking:
| Time Remaining | Captured Profit | Remaining Risk |
|---|---|---|
| 30 DTE | 0% | 100% |
| 21 DTE | 30-40% | 100% |
| 14 DTE | 50-60% | 100% |
| 7 DTE | 70-80% | 100% (gamma explosion) |
| Expiration | 100% | 100% (pin risk) |
The remaining profit becomes harder to capture while risk stays constant. Taking 50% and redeploying capital is more efficient than grinding for the last 50%.
Loss-Cutting Rules
Cut at 2× credit: If you collected $80, close at $160 cost. This limits losses to roughly the same size as your winners.
Cut at 50% of max loss: For a $400 max loss condor, close at $200 loss. You live to trade another day.
Never let max loss happen: Max loss should be extremely rare. If one side is breached and the stock keeps moving, close immediately rather than hoping for reversal.
Exit Checklist
Consider closing when:
- 50% of max profit is reached (take profit)
- Loss reaches 2× credit received (cut loss)
- 21 DTE is reached (avoid gamma)
- Short strike is breached (manage loss)
- Major catalyst is approaching (avoid gap risk)
Iron Condors on Robinhood
Robinhood supports iron condors for users with Level 3 options approval. You can enter all four legs as a single order.
How to Enter an Iron Condor on Robinhood
- Select your underlying (e.g., SPY)
- Tap “Trade” → “Trade Options”
- Choose your expiration date
- Build the put spread first:
- Sell the higher strike put
- Buy the lower strike put
- Add the call spread:
- Sell the lower strike call
- Buy the higher strike call
- Review total credit, max profit, max loss, and breakevens
- Submit as a single package order
Managing on Robinhood
To close an iron condor, navigate to your positions and close all four legs as a package. You can also close each spread separately if needed.
Expiration warning: Robinhood may close your position early on expiration day if the stock is near either short strike. Close iron condors yourself before expiration week to maintain control.
Commission advantage: Zero commissions on four contracts saves $5-10 per trade compared to traditional brokers.
Iron Condors on Tradier
Tradier supports iron condors through its multileg order system. All four legs execute as a package at your net credit price.
Enhanced Features for Iron Condors
Full chain Greeks view: See delta, theta, and vega for every strike at once. This makes strike selection faster and more informed.
Conditional orders: Set up OCO (one-cancels-other) orders to automate profit-taking at 50% and stop-loss at 2× credit. This removes the need for constant monitoring.
API automation: Build scripts that scan for ideal conditions (IV rank, no earnings, range-bound) and enter condors automatically when criteria are met.
Tradier Pricing
Standard plan: $0.35 per contract ($1.40 per iron condor) Pro plan ($10/month): $0 per contract
For active iron condor traders placing 8+ condors per month, the Pro subscription pays for itself.
Iron Condor Example: 30-Day SPY Trade
Here’s a complete starter plan example:
Entry
- Underlying: SPY at $450
- Expiration: 30 days out
- IV Rank: 35 (moderate)
- Setup:
- Sell $435 put / Buy $430 put ($0.45 credit)
- Sell $465 call / Buy $470 call ($0.45 credit)
- Total credit: $0.90 ($90 per condor)
- Max loss: $5.00 − $0.90 = $4.10 ($410)
- Profit zone: $435 to $465
Management Rules
- Profit target: Close at $0.45 (50% of max profit)
- Stop loss: Close at $1.80 (2× credit)
- Time exit: Close at 21 DTE if still open
- Adjustment trigger: If either short strike reaches 35 delta
Possible Outcomes
Best case: SPY stays between $435-$465, both spreads expire worthless, you keep $90.
Good case: SPY drifts slowly toward one side, you close at 50% profit ($45) with 15 days remaining.
Bad case: SPY drops to $438, threatening the put side. You close at 2× credit ($180 cost, $90 loss) before it gets worse.
Worst case: SPY gaps through $430 overnight on unexpected news. Max loss of $410.
Common Mistakes
Selling before earnings: IV is high but gap risk is higher. One overnight move can blow through both strikes.
Strikes too close: Collecting more premium by selling 30+ delta options dramatically reduces probability of profit.
Ignoring profit targets: Holding for the last 25% of profit exposes you to reversals that can erase everything.
Over-leveraging: Iron condors feel safe but one bad month (VIX spike, unexpected crash) can wipe out months of profits.
Not adjusting or cutting losses: Hoping the stock reverses while losses compound. Cut at your predefined stop.
Summary: Your Iron Condor Starter Plan
Iron condors are a probability game. You win most of the time, but when you lose, you lose more than you made. The edge comes from disciplined entry, strike selection, and exit management.
Entry rules:
- IV rank 20-50, no earnings, range-bound price action
- 30-45 DTE for optimal theta decay
Strike selection:
- 16-20 delta short strikes for ~80% probability
- $5-wide spreads for balanced risk-reward
- Credit at least 25% of spread width
Risk management:
- Risk max 2% of account per condor
- Stop at 2× credit or 50% of max loss
Exit strategy:
- Take profits at 50% of max profit
- Close by 21 DTE to avoid gamma
- Never hold through major catalysts
Related Guides
Disclaimer: This is education only. Options trading involves significant risk and is not suitable for all investors. Consult a financial advisor before trading.