Iron Condors Explained: Strikes, Deltas, Width and Where Trades Go Wrong

Dan Sheridan doesn’t wait for price to reach a short strike before he starts paying attention to an iron condor. In his experience, once a short option’s delta rises by about 8 or 9 points, the trade’s current P&L curve (not the expiration graph) starts heading down “the sledding hill.” He’s quick to add that these are rough guidelines, “not on Mount Rushmore.”

This is Part 1 of Dan’s iron condor series. He wants backtesters to round out their options knowledge with a baseline understanding of why the trades act the way they do. So before any backtests, he builds one 22-day SPX iron condor in Option Omega and uses it to explain each choice. The focus is two- to four-week iron condors, not 0DTE.

The example trade: a 22-day SPX iron condor

Dan is clear this is one way to build the trade, not the only way. He picks short strikes by delta; others use standard deviation (“whatever floats your boat”). He aims for short strikes that are roughly equidistant from price and a position that is relatively delta neutral.

Setting	Example
Underlying	SPX (about 7477 at the time of the video)
Days to expiration	22
Short put	20 delta (the 7230 put, about 240 points away)
Short call	10 delta
Wings	10 points wide on each side
Credit	About $245–$250 per contract
Max loss	About $750 per contract ($1,000 width minus the roughly $250 credit)

Dan reads a 20 delta as about a 20% chance of finishing below that strike. A 10-delta put would be further out of the money and bring in less; he wants some probability on his side and a decent yield. His rule of thumb: in an iron condor, the better the risk/reward, the “stinkier” the probabilities, and the reverse.

On the call side he sells a 10 delta rather than a 20. With a 20-delta put and 10-delta call, the position’s delta was about -0.3, which Dan considers close to neutral. He notes iron condors usually lean a little short delta.

Reading the Greeks over time

With 22 days left, gamma showed as zero. Dan pointed out the position still has some gamma; at that duration, deltas just move slowly against you, and a 2% move in the S&P doesn’t change them much. The trade-off is less theta than a shorter trade.

Stepping the model forward in Option Omega’s modeling tool, seven days into the trade the model showed the position up about $60–$70 at one point on the curve, which Dan called almost 10% of the roughly $750 of capital. Closer to expiration, the modeled P&L rose faster, provided price didn’t go through the short strikes. As Dan put it, “That’s the key.”

Implied volatility: friend and enemy

An iron condor is short vega. You sell options with more extrinsic value and buy options with less.

• If implied volatility falls, that generally helps the short-vega position. Price movement can still outweigh that benefit.
• If implied volatility rises, you’re “caught holding the bag.” In the model, VIX up just a couple of points turned the P&L red.

That’s why Dan would rather enter when VIX is toward the upper end of its range, for example after a couple of down days, to get “a little more juice.”

Why Dan sees delta as the biggest enemy

Dan’s view is that delta is generally the main threat. In the model, a week of time barely changed the position’s delta; moving price did. As SPX fell toward the short put, the position got longer delta and the P&L went negative. As SPX rose toward the short call, it got shorter delta, with the same result.

Dialing strikes, width and duration

Strikes. Dan usually starts with a 10-delta call and 20-delta put. For him, relatively delta neutral in SPX means under about one delta per contract. If he’s more nervous about the downside and wants to lean a little short, he targets about -0.5 to -0.6 delta per contract by moving the 10-delta call up to about 14 or 15 delta. The same idea scales: with a 30-delta put and 20-delta call (more theta, fewer probabilities in his favor), he might move the call to about 24 delta.

Width. Dan’s beginner example is five wide, which he said keeps the trade around $400–$500. Dan describes 10-wide wings as another choice with more experience. He does a lot of 10 to 20 wide himself and also mentions 30-wide wings. He notes many 0DTE traders go 100 wide, which is “a different ballgame.”

Duration. Usually two to four weeks. As VIX rises into the 18 to 24 area relative to the past year, he’s willing to go four, five or six weeks out. When volatility is low, he’d rather stay closer in.

The high-volatility misconception

Dan wants higher implied volatility, but he doesn’t trade on it alone. In the COVID correction, VIX climbed from 20 to 80 in a short time. In his telling, selling at 20, then 30, then 40 and 50 would have put you “out of business a couple times over.”

What he looks for is high volatility with some stability: a bit of two-way trade and signs the world is not ending. In COVID, he says, they weren’t looking to sell volatility at 80; they were “thrilled” at 50 or 60, once it was fairly convincing the world wasn’t going to end and things were starting to smooth.

Trouble in River City: the delta levels Dan watches

Going through the short strike is the big-picture risk, but Dan doesn’t think it tells the whole story. Reaching the short strike three or four days into a 22-day trade is “a whole different life experience” than reaching it near expiration. In his view, waiting for price to hit the short strike before doing anything doesn’t reflect a good understanding of how these trades work.

Dan’s rough guidelines, which he says are “not on Mount Rushmore”:

Signal	Short put (starts at 20 delta)	Short call (starts at 10 delta)	What Dan described
Delta up 8–9 points	28–29 delta	18–19 delta	The current P&L curve starts turning against the position; if he’s adjusting, this is where he may look to adjust
Larger rise	About 40 delta	About 30 delta	From what he’s seen historically, down about 15–20% of the capital in the trade

Delta-based exits can be set in an Option Omega backtest, so these levels can be tested rather than taken as given.

Entry, timing and a low-vol alternative

Iron condors can be entered as one order or legged into, for example with the call side entered on an up day and the put side on a down day. Dan says he “stinks” at picking direction, so he enters the full iron condor, ideally in a higher-volatility setting or on a down day, toward the upper end of the three-month range. That’s his ideal, not a requirement: iron condors can be traded in any environment, for example every Thursday. He also asked viewers to think about why vol is high in the first place. The bigger premium, and the extra room to the short strikes, may not be a free lunch.

When volatility gets very low, Dan likes a double calendar instead. It has “the same mother,” the short strangle. When vol is lower, he buys the longs in a later expiration (double calendar). When it’s higher, he buys them further out of the money in the same expiration (iron condor).

“Clean kitchen”: exiting winners early

Dan’s “clean kitchen” idea is to free up capital rather than wait for the last few dollars:

• Once most of the credit has been captured, Dan may close the position to free up capital rather than wait another week or week and a half for the last few dollars.
• A more aggressive version treats each side separately. On a $2 iron condor ($1 per side, or $200 per contract in total), if a move down drops the calls to 30 cents, he asks whether they’re really helping anymore and may close the call side. If the market then bounces for a day or two, he may be able to exit the puts too. He calls this one for more experienced traders.

Diversifying durations and vehicles

Dan likes to spread iron condor capital across durations, and says the mix depends on experience level. His example with $5,000:

Allocation	Amount	Duration
20%	$1,000	0DTE iron condors
30%	$1,500	14-day iron condors
50%	$2,500	Core trade, three to five weeks

His preferred vehicle is SPX, though he says iron condors can also work on liquid stocks and ETFs. For 0DTE iron condors, Dan pointed viewers to his interview with Tammy Chambless; see her MEIC approach.

Key takeaways

1. Dan picks short strikes by delta, balancing probability against yield. His usual starting point is a 20-delta put and 10-delta call.
2. He sees delta as the main enemy. In the model, time barely moved the position’s delta; price did. His rough warning sign is a short delta rising 8–9 points.
3. Width scales with experience in his framework: five wide as the beginner example, 10 to 20 wide for much of his own trading.
4. Duration follows volatility for him: usually two to four weeks, further out when VIX is higher.
5. He wants high IV with some stability, not IV that’s still climbing.
6. He keeps a “clean kitchen” by freeing capital from mostly finished winners, and spreads iron condor capital across durations.

Test it before you trade it

Every choice here (deltas, width, days to expiration, delta-based exits, VIX filters) can be set in the Option Omega backtester. If you want the 0DTE version, start with how to backtest a 0DTE iron condor on SPX. For more of Dan’s framework, see his five principles of an options portfolio.

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Watch the full video: Iron Condors Explained: Strikes, Deltas & Where Trades Go Wrong | Dan Sheridan.

Trades in this post were modeled, not backtested. It is educational only, and options trading involves substantial risk.