Iron Condor

Core Thesis

An Iron Condor is a two-sided defined-risk premium sale. You sell an OTM put spread and OTM call spread to monetize implied range overstatement, expecting spot to remain between short strikes.

Structure

• Put side: short put $K_{ps}$, long put $K_{pl}$.
• Call side: short call $K_{cs}$, long call $K_{cl}$.
• Net credit $C$ at entry.

Expiration Payoff Mathematics

• Max profit: $C$ if $K_{ps} \le S_T \le K_{cs}$.
• Max loss: $\max(K_{ps}-K_{pl}, K_{cl}-K_{cs}) - C$.
• Break-evens: $K_{ps} - C$ and $K_{cs} + C$.

Greek Profile

• Near-delta-neutral at entry.
• Positive theta while spot remains in the body.
• Negative gamma and short vega; large directional moves and vol expansion are adverse.
• Tail risk is concentrated near expiration when gamma steepens.

Design Rules

• Enter when IV is elevated relative to realized expectations.
• Choose short strikes from expected move / probability targets (commonly 10-30 delta zones).
• Wing width follows risk budget, not premium temptation.

Management Framework

• Profit target often 40-70% credit capture.
• If one side is tested, act early: roll untested side, roll out in time, or reduce size.
• Reduce exposure before binary events unless explicitly trading event premium.

Failure Modes

• Overleveraging due to high win-rate optics.
• Selling condors in trend regimes where realized volatility persistently exceeds implied.
• Waiting for "reversion" too long while gamma risk compounds.

Practical Checklist

• Is implied distribution wider than your expected realized distribution?
• Are break-evens outside your invalidation range with statistical buffer?
• Is max loss acceptable under overnight gap stress?