How to Use Iron Condors

Jared Woodard of CondorOptions outlines the rules that he and his team follow for successful iron condor trading.

These are the rules we use when trading iron condors and any similar options spreads. Note that these are time-tested “rules of thumb;” they aren’t iron-clad commandments that can never be broken, but they are strategic pointers that have proven useful. If you ever see us breaking one of these rules, don’t hesitate to ask why—there’s probably a good reason!


  • Always enter a position at least 4-10 weeks prior to expiration. If you’re wrong, the negative gamma risk outweighs positive theta risk at less than four weeks out.

  • Look for a probability of success around 50-70%. Trades with higher probabilities of success also require higher levels of risk, so we usually avoid them.

  • Never enter or exit a position the Wednesday, Thursday, or Friday of expiration week, if possible. Market makers and even electronic servers are taught to tighten the bid/ask spreads during these times.

  • Range-finding techniques: we use a “Condor Options”-branded secret sauce to determine the range of the spreads we work with. But we’ll give you a hint: the formula includes ingredients such as standard deviations, historical volatility, implied volatility, and the price of tea in China.


  • Exit 4-10 calendar days (not trading days) before expiration, and not before then. In other words, exit by time function, not by price. If you or we get really nervous about a trade, there’s no harm in exiting half the position at 10 days before expiration and the rest at 4 days out.

NEXT PAGE: Where do iron condors work best?



  • Let’s say you’re at the firing range, or if you’re as gun-shy but golf-loving as Travis is, you’re at the driving range. You’ve got a target you want to hit, and only three bullets or golf balls with which to hit it. Do you fire all at once in rapid succession, hoping that your aim is okay? No, you take a shot, check your aim, adjust, and try again. The same idea applies here: if you are only going to put on three condor positions in a given month, why jump in all at once? It’s much smarter to take an initial step, let the market do whatever it wants for a few days, and then initiate your second position. Wait a bit more, double check your aim, and then take on the third position. Commissions and slippage have been significantly reduced over the last several years, so while this rule would have been very expensive to follow 10 years ago, today it just makes sense.


  • We don’t trade iron condors on non-index products. The biggest reason for this is that any individual stock will be subject to sudden price movement from events both expected (earnings, industry reports) and unexpected (management changes, big competitor success, etc.). The danger with these events is that they can easily create binary situations for our trades—if earnings are coming out on a volatile stock, either a good or bad report could push the price outside the range of our trade, leaving us with a loser overnight. Using index products instead dramatically (in fact, almost completely) removes this risk. The only analogous event risks to indexes are market-external events like economic reports, geopolitical events, etc., and of course, these are also risk factors for individual stocks.

  • So instead of looking to GOOG, AAPL, XOM, or GE for our underlying, we prefer the most liquid and actively traded indexes. Until recently, this meant things like SPX, RUT, and OEX. But the introduction and increasing use of ETF indexes has made those instruments increasingly attractive, not least because they often feature tighter bid/ask spreads and electronic execution. So now we usually look to SPY, IWM, DIA, QQQ, XLE, and similar underlying instruments. These weapons give us greater flexibility, reduce slippage, and faster execution.


  • This is a trade allocation strategy not taught by any other investing site. It entails putting on multiple iron condors with same expiration month but non-identical strike ranges and at different times.

It is important to realize that an iron condor options spread is no more a “strategy” than buying a share of stock, selling short a futures contract, or purchasing a US Treasury bond are strategies. These are all merely financial transactions. They rise to the level of strategies only after there is some thesis in place that justifies each transaction. Just as a value investor would not buy shares of stock without first gaining knowledge about the nature of the company, its balance sheet, and so on, an options trader requires some information before an iron condor spread can be justified. In other words, there are certain situations in which an iron condor spread will be appropriate.

Jared Woodard can be found on CondorOptions.