A short iron condor is an income strategy that aims to profit when a stock stays within a specified range over the course of the trade. The trade is composed of four options with the same expiration:

• A long put far out of the money
• A short put closer to the money
• A long call far out of the money
• A short call closer to the money

The maximum profit is limited to the premium received while the maximum potential loss is also capped. To calculate the maximum loss, take the difference in the strike prices of the long and short options, and subtract the premium received.

Traders should have a neutral outlook on the stock and ideally look to enter when the stock has a high implied volatility rank.

Let’s take a look at Barchart’s Short Iron Condor Screener for May 14th:

As you can see, the scanner shows some interesting Iron Condor trades on stocks such as TSLA, COIN, AVGO, META, NVDA and MSFT.

Let’s look at the first line item – an iron condor on Tesla.

Using the June 20th expiry, the trade would involve selling the $200 put and buying the $170 put. Then on the calls, selling the $470 call and buying the $500 call.

The price for the condor is $0.97 which means the trader would receive $97 into their account. The maximum risk is $2,903 for a total profit potential of 3.34 with a loss probability of just 3.9%.

The profit zone ranges between $199.03 and $470.97. This can be calculated by taking the short strikes and adding or subtracting the premium received.

The Barchart Technical Opinion rating is a 24% Buy with an Average short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

The market is in highly overbought territory. Beware of a trend reversal.

Tesla is showing an IV Percentile of 45% and an IV Rank of 28.16%. The current level of implied volatility is 59.85% compared to a 52-week high of 105.08% and a low of 42.12%.

Tesla has already reported Q1 earnings, so this trade should not have earnings risk if held to expiration.

The next Iron Condor we will look at is on the fifth line using Meta Platforms (META) for the June 20th expiration.

This example involves selling the $560 put and buying the $530 put, then selling the $860 call and buying the $890 call.

The maximum profit potential is $111 with maximum risk of $2,889 and a loss probability of 4.5%. The total profit zone ranges between $558.89 and $861.11.

The Barchart Technical Opinion rating is a 8% Buy with a Weakening short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

The market is in highly overbought territory. Beware of a trend reversal.

META is showing an IV Percentile of 29% and an IV Rank of 8.84%. The current level of implied volatility is 29.04% compared to a 52-week high of 68.30% and a low of 25.23%.

Mitigating Risk

Thankfully, iron condors are risk defined trades, so they have some build in risk management. The most the TSLA example can lose is $2,903 while the META condor has risk of $2,889.

For each trade consider setting a stop loss of 25-30% of the max loss.

Iron condors can also contain early assignment risk, so be mindful of that if the stock breaks through the short strike and it’s getting close to expiry.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.