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Iron Condors and the Greeks

Hi Mark,

I'm so happy that I discovered your website after subscribing to Expiring Monthly. I commend your devotion to educating new traders.

I was an overconfident trader and had a long run of luck before taking too much risk and nearly destroying my account. Now I'm pausing and learning everything I can.

My question regards the greeks and iron condor selection. When I setup an IC 4-6 weeks prior to expiration, the theta is negligible.  Actually the greeks in general are all very small. How important are the Greeks when you set up an IC?

I understand the general benefit of putting an IC many weeks away for a higher premium, are there other benefits? Are there guidelines on selecting the distance between strikes? I know as expiration approaches the long option loses it's effectiveness.

Thanks in advance.



Hello Mark,

Thanks for the kind words.


I've often said that beginning with a string of winning trades is not necessarily a good thing for the new trader.  Sure, the money is wonderful, but the overconfidence that results can destroy a trading career.  For some reason that I cannot understand, beginning traders (stocks, options, forex etc.) believe that it's easy to earn good money consistently – with zero training or practice.

I'm sorry for the bad experience, but very glad to hear you are going more slowly.

Greeks measure risk

1) Remember this: The Greeks are important, but they serve only one purpose.  They allow you to measure risk. They are not magic bullets that solve all problems.

That ability to measure risk gives option traders an avantage over other traders.  Your job, as risk manager, is to learn to read warning signs and know what action is needed to reduce risk to an acceptable level. That ability does not come overnight.

2) When the Greeks feel 'small,' then you are well within your comfort zone. If your trade is neutral, the Greeks should be small.  Except for vega.  Iron condos are short vega (volatility risk).

3) When deciding which iron condor to trade, an important Greek is delta.  Consider delta to be the probability that an option will finish in the money, if the position is held to expiration.  Sum the put and call delta (ignoring the sign) and you have a good estimate of how often one of your short options will be ITM at exoiration. NOTE:  The chances that the iron condor will move into the money at some time during it's lifetime is much larger than the probability that it will finish ITM. You can find this number by using a 'probability of touching' calculator.

Why bother? To find a trade that suits your needs.  Although adjusting can lead to extra profits, most traders believe that making an adjustment is something to avoid.  They mistakenly believe that it automatically locks in a loss.  But even when that is true, that's better than taking too much risk.

Many successful iron condor traders consider adjustments as a way to increase their annual earnings.  Instead of fearing an adjustment, they consider it to be an opportunity. For now, let's just assume that making adjustments is something you prefer to avoid.

Thus, delta helps decide which options to sell. There must be a compromise between a low delta and collecting a sufficient premium.  The ideal scenario is to sell a spread using options with very low delta, and collecting a very high premium.  You will not find that scenario.  The goal is to find the best compromise for your situation.

For the true rookie, a paper-trading account is the ideal place to get experience that helps with the decision-making process.

4) The very important Greek, gamma, comes into play only after the underlying has moved.  Gamma is small when you open the position. 

Theta is your ally, but it's also a temptress.  Do not go out of your way to build a position just because it has a high theta.

5) Once Greeks are determined and risk is measured, it's up to the trader (and his/her risk manager persona) to decide when risk is acceptable.  If it has moved outside your comfort zone, that's not good.  Do something intelligent to improve your position.

Look at position graphs and change prices and dates.  See how much can be lost if the stock price changes or implied volatility changes.  When that (potential) loss is not acceptable, it's a warning.  By paying attention to the graph, you will find a price at which "this is uncomfortable for me, and if we get to that point, or perhaps as we approach that point, I am going to take some action to reduce risk." 

That's how I suggest using the Greeks.


Longer-term iron condors

The advantages are

  • Higher premium
  • Shorts have lower delta
  • Position has less negative gamma.  This is important, and the primary reason I prefer to trade 3-month iron condors.
  • If willing to sacrifice the period of rapid time decay in exchange for avoiding the period of maximum risk, longer-term iron condors often offer the opportunity to exit 3 – 4 weeks before expiration.


  • Reduced theta
  • More time for something bad to happen


Distance between strikes

a) The call spread and put spread

A 20-point iron condor is equivalent to two adjacent 10-point iron condors.  There is no significant difference in strategy.  You should trade positions that feel comfortable.  Two consecutive10-point spreads have the same margin requirement and similar P/L as one 20-point spread.

b) Distance between the calls and the puts

Makes no difference.  I ignore this.  Instead, choose the call spread and put spreads based on their individual properties: delta and premium.  Whether the short options are 200 points apart or 150 points apart (I trade RUT), makes no difference.

One position or two?

I look at the iron condor as two separate trades.  I sell a call spread with an appropriate delta and premium.  I do the same for the put spread.  The one way that I consider the entire position is when I initiate the trade.  I enter the entire iron condor as a single order, but seldom adjust or exit the position in its entirely.  I have two positions, each with its own risk management requirements


Effectiveness is a relative term.  If your long option becomes worthless as expiration nears, it does not matter.  When trading iron condors, your want that option to become worthless.

The sole purpose of buying the wings (the options bought in an IC) is to LIMIT losses.  It serves that purpose right up to the very last second.  It limits losses.  It is 100% effective when providing that function.  


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