How to Trade Iron Condors — Step by Step

Why Iron Condors?

Iron condors let you profit from a stock staying in a range. You sell a put spread below the price and a call spread above it, collecting premium from both sides. If the stock does not make a big move, you keep the credit. The risk is defined — you know your max loss before entering.

Step 1: Choose the Right Underlying

Iron condors work best on:

High-liquidity stocks or ETFs like SPY, QQQ, IWM, or AAPL. Tight bid-ask spreads are critical.
Range-bound underlyings. Avoid trending stocks. Look for stocks trading sideways or in a channel.
Elevated IV. Higher IV means richer premiums. Use IV rank or IV percentile to gauge if volatility is elevated.

Avoid iron condors on stocks about to report earnings or face a major catalyst.

Step 2: Select Your Expiration

Use the 30-45 day window. This is the optimal balance between premium collected and time decay. At 30-45 DTE, theta decay is accelerating but you still have time to manage the position.

Step 3: Pick Your Short Strikes

The short strikes define your profit zone:

15-20 delta for each short strike is a common starting point. This gives roughly a 65-75% probability of the stock staying between your short strikes.
The wider apart, the higher your probability of profit but the lower your premium.
Use the expected move as a guide. The expected move tells you what the market thinks the stock will move by expiration. Place your short strikes outside this range.

Step 4: Pick Your Long Strikes (Wings)

The long strikes define your max loss:

Equal width on both sides. If your put spread is $5 wide, make your call spread $5 wide too.
Wider wings = more max loss but more premium. $5-wide wings on SPY are standard.
The long strikes protect you. They cap your loss and reduce margin requirements.

Step 5: Check the Numbers

Before entering, verify:

Credit received: At least 1/3 of the spread width. For a $5-wide iron condor, collect at least $1.60-$1.70.
Max loss: Spread width minus credit. For $5 wide spreads with $1.70 credit, max loss is $3.30 per share ($330 per contract).
Risk-reward ratio: Should be at least 1:2 (risk $2 to make $1) with a high probability of profit.

Step 6: Enter the Trade

Open the option chain and select your expiration
Select all four legs simultaneously (most platforms have an "iron condor" order type)
Use a limit order at the mid-price of the natural width
Adjust the limit price by $0.05 at a time if it does not fill immediately
Confirm the credit received matches your target

Step 7: Manage the Position

Close at 50% of max profit. If you collected $170, buy the iron condor back when it costs $85. This dramatically improves your win rate.
Close at 21 DTE. If the trade has not hit 50% profit by 21 days to expiration, close it. Gamma risk increases sharply after this point.
Close if loss reaches 1.5-2x the credit. If you collected $170 and the position is now losing $255-$340, close it.
Roll the tested side if one side is being challenged. Buy back the threatened spread and sell a new one further out in time.

Step 8: Repeat and Track Results

Keep a trading journal. Track your entries, exits, and results. Over 10-20 trades, you will see the consistency that makes iron condors a reliable income strategy.

Common Mistakes to Avoid

Putting iron condors on through earnings — the gap risk is huge
Making wings too narrow — you collect barely any premium for the risk
Not managing losers — letting losses run to max loss instead of cutting early
Over-sizing — never risk more than 3-5% of your account on a single iron condor

Summary

Iron condors are a bread-and-butter income strategy. Choose liquid underlyings with elevated IV, sell 15-20 delta short strikes with equal-width wings, collect at least 1/3 the spread width, and manage at 50% profit or 21 DTE. Consistent execution over time produces steady results.