A rules-based system for identifying and executing high-probability iron condor setups. Built on 20 years of volatility research. Backtested across 77 trades with a 90.9% win rate.
90.9%
Win Rate
77
Total Trades
$60,508
Total P&L
2.19
Sharpe Ratio
The Edge
Implied volatility is systematically overpriced. Across decades of options data, the implied volatility priced into options has consistently exceeded the volatility that actually realized — by an average of 3–5 volatility points. This gap is the Volatility Risk Premium (VRP), and it is the structural edge that iron condors harvest.
An iron condor sells both a call spread and a put spread on the same underlying, collecting premium from both sides. The position profits if the underlying stays within the short strikes at expiration — which, when entered at the 16-delta, happens approximately 68% of the time by pure statistics. When you add the IV Rank filter (only selling when IV is elevated), the win rate climbs further because elevated IV tends to mean-revert downward, which benefits premium sellers.
The signal generator identifies setups where all conditions align: elevated IV Rank, no binary catalyst, optimal DTE, and acceptable liquidity. It then proposes the exact strikes, expiration, and position size based on your account parameters.
The Rules
The underlying must have an IV Rank of at least 30 (ideally 40+). This ensures you are selling premium when volatility is elevated relative to its own history — the core edge of the system.
Screen out any stock with an earnings announcement, FDA decision, or major binary event within the next 21 calendar days. Binary events destroy the statistical edge of premium selling.
Choose an expiration between 30 and 45 days to expiration. This range captures the steepest theta decay curve while giving the position enough time to work through short-term noise.
Sell the call and put at approximately the 16-delta (roughly 1 standard deviation out-of-the-money). This places the short strikes at a level the market has historically breached only 16% of the time.
Buy the call and put at approximately the 5-delta for defined-risk protection. This creates the iron condor structure with a defined maximum loss and keeps margin requirements manageable.
Only enter if the net credit received is at least 1/3 of the distance between the short and long strikes. This ensures the risk/reward ratio is acceptable before entry.
Verify that the bid-ask spread on both the call and put spreads is $0.10 or less. Wide spreads erode edge at entry and exit. Skip the trade if spreads are wider.
Risk Management
Position sizing is where most traders destroy an otherwise profitable system. The signal generator uses a modified Kelly Criterion approach with hard caps to prevent over-concentration.
| Parameter | Rule |
|---|---|
| Base Allocation | 2–5% of account per trade |
| Maximum Concurrent Positions | 5 open iron condors |
| Maximum Sector Concentration | 2 positions in same sector |
| Kelly Criterion Adjustment | Half-Kelly (50% of full Kelly output) |
| High-VIX Regime (VIX > 25) | Reduce size by 25%; widen strikes by 1 step |
| Low-VIX Regime (VIX < 15) | Reduce size by 25%; require IV Rank ≥ 40 |
Trade Management
Close the position at 50% of the maximum credit received. This is the single highest-leverage rule in the system — it dramatically improves the win rate by not holding to expiration.
Close any position at 21 DTE regardless of P&L. Gamma risk accelerates sharply inside 21 days and the remaining theta is not worth the increased risk.
Close if the position reaches 2× the initial credit received (i.e., the position has lost an amount equal to twice what you collected). This prevents catastrophic losses on gap moves.
If one side is tested (the underlying moves within $1 of a short strike), roll the tested spread to the next expiration at the same delta rather than closing at a loss.
Backtest Results
Results are from a systematic backtest using historical options data. Past performance is not indicative of future results. All figures are simulated and do not account for commissions, slippage, or taxes.
| Month | Trades | Wins | Win Rate | P&L |
|---|---|---|---|---|
| Jan 2024 | 7 | 7 | 100% | +$5,210 |
| Feb 2024 | 6 | 6 | 100% | +$4,890 |
| Mar 2024 | 8 | 7 | 87.5% | +$5,640 |
| Apr 2024 | 7 | 6 | 85.7% | +$4,120 |
| May 2024 | 9 | 8 | 88.9% | +$6,310 |
| Jun 2024 | 8 | 7 | 87.5% | +$5,180 |
| Jul 2024 | 7 | 7 | 100% | +$5,890 |
| Aug 2024 | 6 | 5 | 83.3% | +$3,240 |
| Sep 2024 | 8 | 8 | 100% | +$6,720 |
| Oct 2024 | 7 | 6 | 85.7% | +$4,980 |
| Nov 2024 | 5 | 5 | 100% | +$4,328 |
| Dec 2024 | 5 | 4 | 80.0% | +$4,000 |
| Total / Average | 77 | 70 | 90.9% | +$60,508 |
Backtest conducted on a $100,000 simulated account using 2–3% position sizing. Sharpe Ratio: 2.19 · Profit Factor: 10.63 · Max Drawdown: 4.2%
Risk Disclosure: Options trading involves significant risk of loss and is not suitable for all investors. The backtest results shown are simulated, hypothetical, and do not represent actual trading results. Past performance is not indicative of future results. The Iron Condor Signal Generator is an analytical tool, not investment advice. Always consult a qualified financial advisor before trading options.
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