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Summary

The iron condor sells an OTM call spread above the market and an OTM put spread below it, collecting combined credit if the underlying stays between the short strikes through expiration2. It is the defined-risk version of the short strangle — wings cap the open-ended tails at the cost of a smaller credit. TOMIC treats it as the core premium-selling trade when IV exceeds HV (or ATR) and implied vol is stable or falling1.

Construction

  • Sell 10–12 delta calls and puts (TOMIC convention), buy further-OTM wings on each side1.
  • Four strikes: put wing < short put < short call < call wing. Equal-width verticals keep risk symmetric; uneven wings create a broken-wing variant.
  • Best entered ~60 DTE, when theta is meaningful but gamma near the shorts is not yet violent1.

Payoff Table

Short 95 put / long 90 put, short 105 call / long 110 call, total credit 2.50, on a 100 stock:

Price at expiry P&L
Between 95 and 105 +2.50 (max profit)
92.50 (lower breakeven) 0.00
97.50 +2.50 (still between the short strikes)
≤ 90 −2.50 (max loss, put side)
≥ 110 −2.50 (max loss, call side)

Lower breakeven = short put − credit = 95 − 2.50 = 92.50; upper breakeven = short call + credit = 105 + 2.50 = 107.50. Max loss = wing width − credit = 5.00 − 2.50 = 2.50 on whichever side is breached; both sides cannot lose simultaneously (excluding gaps through both).

Greeks Profile

Greek Near entry (shorts ~1 SD out) Near a short strike
Delta Small (long strikes chosen to flatten) Large and adverse
Gamma Short — movement hurts Most negative
Theta Positive — the engine Accelerates either way
Vega Negative — profits from IV falling Loses if IV spikes

This is the classic short-gamma/short-vega/positive-theta profile: the trader is paid for realized volatility coming in under implied3.

Best Regime / Market View

  • IV > ATR, IV stable or falling, no near-term catalyst; somewhat steep skew improves put-side credit1.
  • Probability vs. profit tradeoff: strikes closer to the money collect more credit (higher reward, lower probability of keeping it); strikes farther out do the reverse. Selling ~1-SD strikes prices the structure near "underlying stays inside one standard deviation" odds2.
  • Fits quiet, mean-reverting or slowly drifting regimes; poor fit for breakout/trend regimes.

Primary Risks

  • Gamma near the short strikes: in the final weeks a breach can move faster than adjustments can offset.
  • Volatility expansion: IV rise marks the position against you even if price hasn't moved.
  • Gap risk through a wing; assignment on ITM shorts near expiry/dividends.
  • Third Third Third Rule (TOMIC): adjust at 1/3 of loss, 2/3 of loss, exit at max loss1.

Management Levers

  • Profit target: close at 50–60% of the credit received rather than holding to expiration1.
  • Adjust the tested side: kite spread (upside), ratio spread (downside), or roll the threatened vertical — each is a vertical-family repair1.
  • Roll out in time when the credit has decayed but the range thesis holds.
  • Size so max loss is an acceptable unit of risk capital; width, not credit, defines risk.

Variants

  • Iron butterfly: shorts at the same middle strike — bigger credit, tighter profit tent, faster theta; see Butterflies.
  • Broken-wing condor: unequal wings to skew the payoff or eliminate cost on one tail.
  • Double diagonal: condor-shaped but with wings in a later month — blends in calendar (vega-positive) character2.
  • Unbalanced/lean condor: more short deltas on one side to express a mild directional tilt.

Links

Source Notes

  1. TOMIC iron condor conditions, setup, and adjustment playbook, ../option-traders-hedge-fund-bundle/topics/strategies.md. ↩↩↩↩↩↩↩

  2. Trading Option Greeks, wing spreads, ../trading-option-greeks/topics/spreads.md. ↩↩↩

  3. Natenberg spread sensitivities — short gamma/short vol family, ../option-volatility-and-pricing-bundle/topics/spreads.md. ↩