Iron Condor

Iron Condor Strategy

Version: 1.0 Last Updated: 2025-12-12

Overview

An iron condor is a credit spread strategy that profits from range-bound price action. By selling an OTM put spread and an OTM call spread simultaneously, the trader collects premium upfront and profits when the stock remains between the short strikes through expiration, benefiting from time decay and volatility contraction.

Quick Summary: Sell OTM put spread + Sell OTM call spread = Collect credit, profit from range

Strategy Characteristics

Position Structure:

• Sell 1 OTM put (short put)
• Buy 1 further OTM put (long put, protection)
• Sell 1 OTM call (short call)
• Buy 1 further OTM call (long call, protection)
• All same expiration, typically equal wing widths

Risk Profile:

• Maximum Profit: Net credit received
• Maximum Loss: Wing width - Net credit
• Breakeven Points:
  • Lower: Short put - Net credit
  • Upper: Short call + Net credit
• Best Use: Expect stock to stay range-bound, benefit from theta and IV crush

Cost Components:

• Put spread credit: Received
• Call spread credit: Received
• Net credit = Total received (keep if stock stays in range)
• Max risk = Wing width - Net credit
• Transaction costs: ~$0.65 per contract × 4 legs = $2.60

Quick Start

Calculate iron condor metrics:

from scripts.iron_condor_calculator import IronCondor

# Example: SPY at $450, expect to stay $440-$460
position = IronCondor(
    underlying_price=450.00,
    short_put=440.00,     # Sell $440 put
    long_put=435.00,      # Buy $435 put ($5 wide)
    short_call=460.00,    # Sell $460 call
    long_call=465.00,     # Buy $465 call ($5 wide)
    put_spread_credit=0.75,
    call_spread_credit=0.80,
    contracts=1
)

# Key metrics
print(f"Net Credit: ${position.net_credit:.2f}")
print(f"Max Profit: ${position.max_profit:.2f}")
print(f"Max Loss: ${position.max_loss:.2f}")
print(f"Breakevens: ${position.lower_breakeven:.2f} - ${position.upper_breakeven:.2f}")
print(f"Profit Zone: {position.profit_zone_width:.0f} points")

Core Workflow

1. Identify Range-Bound Opportunity

Look for stocks likely to trade sideways:

Ideal Scenarios:

• Post-Earnings Consolidation: Stock settles after earnings volatility
• Technical Range: Trading between support/resistance
• High IV Crush Candidate: Elevated IV likely to contract
• Sideways Trend: Lack of directional catalyst
• Index Products: SPY, QQQ during low-volatility periods

Market Conditions:

• IV rank >50 (premium rich environment)
• Recent volatility > Expected future volatility
• Clear support/resistance levels
• No major catalysts upcoming
• Historical range-bound behavior

See references/range-identification.md.

2. Wing Width Selection

Narrow Wings ($2.50-$5):

• Lower max risk ($250-$500 per contract)
• Lower credit collected (~$0.50-$1.50)
• Better risk/reward ratio (often 3:1 or better)
• Easier to manage (less capital at risk)
• Example: $440/$445 put spread + $455/$460 call spread

Standard Wings ($5-$10):

• Moderate max risk ($500-$1,000 per contract)
• Moderate credit (~$1.00-$2.50)
• Balanced approach (most common)
• Example: $435/$445 put spread + $455/$465 call spread

Wide Wings ($10-$20):

• Higher max risk ($1,000-$2,000 per contract)
• Higher credit (~$2.50-$5.00)
• Lower R:R ratio (often <2:1)
• More capital intensive
• Example: $430/$450 put spread + $450/$470 call spread

Selection Criteria:

• Match wing width to risk tolerance
• Wider wings = more credit but worse R:R
• Target R:R ratio: 3:1 or better (credit:risk)

See references/wing-width-selection.md.

3. Strike Placement Framework

Delta-Based Approach (Most Common):

Conservative (Wide profit zone):

• Short put: ~-0.10 delta (10% OTM)
• Short call: ~0.10 delta (10% OTM)
• Probability of profit: ~80%
• Example: Stock $100 → Short $90 put / Short $110 call

Standard (Balanced):

• Short put: ~-0.20 delta (7-8% OTM)
• Short call: ~0.20 delta (7-8% OTM)
• Probability of profit: ~70%
• Example: Stock $100 → Short $92 put / Short $108 call

Aggressive (Narrow profit zone):

• Short put: ~-0.30 delta (5% OTM)
• Short call: ~0.30 delta (5% OTM)
• Probability of profit: ~60%
• Higher credit, tighter range
• Example: Stock $100 → Short $95 put / Short $105 call

See references/strike-placement-guide.md.

4. Profit Zone Optimization

Compare different strike configurations:

from scripts.condor_optimizer import optimize_profit_zone

configs = optimize_profit_zone(
    underlying_price=450.00,
    short_deltas=[0.10, 0.15, 0.20, 0.25, 0.30],
    wing_width=5.00,
    volatility=0.22,
    days_to_expiration=45
)

for config in configs:
    print(f"Delta {config['short_delta']:.2f}:")
    print(f"  Profit Zone: ${config['lower_short']:.2f} - ${config['upper_short']:.2f}")
    print(f"  Zone Width: {config['zone_width']:.0f} points ({config['zone_pct']:.1f}%)")
    print(f"  Credit: ${config['net_credit']:.2f}")
    print(f"  Max Risk: ${config['max_risk']:.2f}")
    print(f"  R:R Ratio: {config['rr_ratio']:.2f}:1")

See references/profit-zone-optimization.md.

5. IV Rank and Premium Analysis

Assess volatility environment:

from scripts.iv_analyzer import analyze_iv_for_condor

analysis = analyze_iv_for_condor(
    symbol='SPY',
    current_iv=0.22,
    lookback_period=252
)

print(f"IV Rank: {analysis['iv_rank']:.0f}")
print(f"IV Percentile: {analysis['iv_percentile']:.0f}")
print(f"Premium Rich: {analysis['is_premium_rich']}")
print(f"IV Crush Likely: {analysis['iv_crush_likely']}")
print(f"Optimal for Condor: {analysis['condor_optimal']}")

Ideal IV Environment:

• IV Rank: 50-90 (elevated premiums)
• IV Percentile: 60-90
• Recent IV spike (likely to contract)
• No major catalysts ahead (avoid IV expansion)

⚠️ Avoid when IV rank <30 (insufficient premium)

See references/iv-analysis.md.

6. Expiration Cycle Selection

Short-Term Condors (21-30 days):

• Faster theta decay benefit
• Less time for stock to breach
• More active management required
• Higher annualized return potential
• Best for: Active traders, high-probability setups

Standard Condors (30-45 days):

• Balanced theta and time
• Industry standard (most common)
• Moderate management
• Sweet spot for theta/gamma balance
• Best for: Most traders, most conditions

Long-Term Condors (45-60 days):

• Slower theta decay
• More time for adjustments
• Lower theta benefit
• More forgiving
• Best for: Less active traders, wider ranges

See references/expiration-selection.md.

7. Greeks Monitoring

Track condor Greeks:

from scripts.greeks_calculator import calculate_condor_greeks

greeks = calculate_condor_greeks(
    short_put=440.00,
    long_put=435.00,
    short_call=460.00,
    long_call=465.00,
    underlying_price=450.00,
    volatility=0.22,
    time_to_expiration=45/365
)

print(f"Delta: {greeks['delta']:.3f}")    # ~0 (neutral)
print(f"Gamma: {greeks['gamma']:.3f}")    # Negative (position speeds up outside range)
print(f"Theta: {greeks['theta']:.3f}")    # Positive (earns decay)
print(f"Vega: {greeks['vega']:.3f}")      # Negative (benefits from IV drop)

Key Insights:

• Delta: Near zero (directionally neutral)
• Gamma: Negative (accelerates against you outside range)
• Theta: Positive (earns time decay daily)
• Vega: Negative (benefits from IV contraction)

See references/greeks-guide.md.

8. Position Sizing

Calculate risk-appropriate contracts:

from scripts/position_sizer import calculate_condor_size

contracts = calculate_condor_size(
    portfolio_value=100000,
    risk_per_trade=0.02,      # 2% max risk
    max_loss_per_condor=345   # Wing width $5 - Credit $1.55
)
# Returns: 5 contracts (max risk $1,725 = 1.73%)

Sizing Guidelines:

• Risk 1-3% of portfolio per condor
• Account for max loss (wing width - credit)
• Consider deploying multiple condors at different ranges
• Leave room for adjustments

See references/position-sizing.md.

9. Entry Execution

Order Types:

• Iron Condor Order: Single order for all 4 legs (best execution)
• Credit Limit Order: Set minimum net credit willing to accept
• Separate Spreads: Enter put spread and call spread separately (suboptimal)

Best Practices:

• Always enter as iron condor order (one ticket)
• Set limit at mid-point of condor bid/ask
• Adjust by $0.05-$0.10 if not filled
• Verify equal wing widths before sending
• Confirm credit received (not debit)

Entry Timing:

• Enter when IV rank >50
• After volatility spike (IV likely to contract)
• Avoid day before earnings/events
• Best: 30-45 days to expiration

10. Management and Adjustments

Profit Taking:

• 50% max profit: Standard target (close at 50% of credit)
• 21 DTE: Rolling point (close and re-establish if desired)
• 75% max profit: Near optimal, theta slowing

Defensive Adjustments (Stock approaching short strike):

Roll Untested Side:

• Stock moving up: Close call spread, roll to higher strikes
• Stock moving down: Close put spread, roll to lower strikes
• Keep tested side, collect more credit

Convert to Iron Butterfly:

• Close breached spread
• Sell ATM spread on opposite side
• Tightens profit zone but collects credit

Close and Re-establish:

• Accept loss on current condor
• Open new condor at different range
• Fresh premium, reset probabilities

See references/adjustment-strategies.md.

Scripts

Calculator

# Calculate iron condor metrics
python scripts/iron_condor_calculator.py \
  --underlying SPY \
  --price 450 \
  --short-put 440 \
  --long-put 435 \
  --short-call 460 \
  --long-call 465 \
  --put-credit 0.75 \
  --call-credit 0.80

Optimizer

# Optimize profit zone configuration
python scripts/condor_optimizer.py \
  --underlying SPY \
  --price 450 \
  --short-deltas 0.10 0.15 0.20 0.25 0.30 \
  --wing-width 5 \
  --dte 45

IV Analyzer

# Analyze IV environment for condor
python scripts/iv_analyzer.py \
  --symbol SPY \
  --current-iv 0.22 \
  --lookback 252

References

Core Guides

• quickstart-guide.md - 5-minute overview
• installation-guide.md - Setup instructions
• developer-guide.md - Code standards

Strategy-Specific

• range-identification.md - Finding sideways opportunities
• wing-width-selection.md - Choosing spread width
• strike-placement-guide.md - Delta-based framework
• profit-zone-optimization.md - Optimize range
• iv-analysis.md - IV rank, percentile, premium environment
• expiration-selection.md - 21/30/45 day comparison
• greeks-guide.md - Delta, gamma, theta, vega
• position-sizing.md - Risk management
• adjustment-strategies.md - Rolling, defending
• examples.md - Real range-bound setups

Dependencies

Required Packages:

numpy>=1.24.0
pandas>=2.0.0
matplotlib>=3.7.0
scipy>=1.10.0

Installation:

pip install -r requirements.txt

Python Version: 3.11+

Risk Warnings

⚠️ Key Risks:

• Limited Profit: Capped at net credit received
• Undefined Risk (if not managed): Max loss = Wing width - Credit
• Gamma Risk: Position accelerates against you outside range
• Assignment Risk: Short options can be assigned early
• Pin Risk: Stock settling at short strike (complex scenarios)
• Gap Risk: Overnight gaps can breach strikes
• Adjustment Cost: Rolling can be expensive in losses

Risk Mitigation:

• Only trade in high IV environments (IV rank >50)
• Set max loss at 2-3× credit received
• Close early if breached (don't hope)
• Monitor approaching earnings/events
• Use mechanical profit taking (50% rule)
• Size conservatively (1-3% portfolio risk)
• Have adjustment plan before entry

When to Use Iron Condor

✅ Ideal Scenarios:

• Range-bound market (sideways trend)
• High IV environment (IV rank >50)
• Post-earnings consolidation
• No major catalysts upcoming
• Clear support/resistance levels
• Want to collect premium with defined risk
• Comfortable with active management

❌ Avoid When:

• Low IV environment (IV rank <30)
• Trending market (strong directional bias)
• Pre-earnings or major catalyst
• Wide bid/ask spreads (illiquid)
• Can't actively monitor (vacations)
• Uncertain market conditions

Comparison to Other Strategies

vs. Iron Butterfly: Wider profit zone and lower max loss probability, but lower credit.

vs. Long Butterfly: Collect credit vs. pay debit. Benefits from time decay.

vs. Straddle/Strangle: Defined risk with wings. Opposite thesis (want no move vs. big move). Collect premium.

Example Trade

Scenario: SPY at $450, IV rank 72, expect to stay $435-$465 over 45 days

Setup:

• Sell 1 SPY $440 put @ $1.25
• Buy 1 SPY $435 put @ $0.50 (Put spread credit: $0.75)
• Sell 1 SPY $460 call @ $1.30
• Buy 1 SPY $465 call @ $0.50 (Call spread credit: $0.80)
• Net credit: $1.55 × 100 = $155 per condor
• Contracts: 10 condors
• Expiration: 45 days

Risk Profile:

• Max Profit: $155 × 10 = $1,550 (if SPY $440-$460 at expiration)
• Max Loss: ($5 wing - $1.55 credit) × 100 × 10 = $3,450
• Lower Breakeven: $440 - $1.55 = $438.45
• Upper Breakeven: $460 + $1.55 = $461.55
• Profit Zone: $438.45 - $461.55 (23-point range, ±5.1%)
• Risk/Reward: 2.2:1 (excellent)
• Probability of Profit: ~75%

Outcomes: SPY $440-$460 = max profit $1,550; at $461 = breakeven; outside wings = max loss $3,450

Management: Target 50% max profit ($775) or 21 DTE; stop if SPY approaches wings

Version History

v1.0 (2025-12-12)

• Initial release using SKILL_PACKAGE_TEMPLATE v3.0
• Anthropic + Claude Code compliant (<500 lines)
• Progressive disclosure with references/
• Complete condor optimizer and IV analyzer
• Delta-based strike placement framework
• Adjustment strategies and profit zone optimization

Compliance: Anthropic Best Practices ✅ | Claude Code Compatible ✅ Template: SKILL_PACKAGE_TEMPLATE v3.0 Lines: ~490 (under 500-line limit)