With volatility remaining stubbornly high, option premiums are elevated which could mean it’s a great time for iron condor trades.

An iron condor aims to profit from a drop in implied volatility, with the stock staying within an expected range.

When implied volatility is high, the wider the expected range becomes.

The maximum profit for an iron condor 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 percentile.

First, let’s look for stocks with a high implied volatility percentile. For this example, we will exclude any stocks with earnings within the next 30 days.

Here is the screener setup.

And here are the results:

We can see that UnitedHealth Group (UNH), Gilead Sciences (GILD), Merck & Company (MRK), AbbVie (ABBV) and Apple (AAPL) all have a high IV Percentile, so let’s use some of those stocks in our Iron Condor Screener.

Here are the filters:

And these are the results:

Let’s evaluate three different iron condor trade ideas presented in the table above.

ABBV Iron Condor

Using the June 20 expiry, the trade would involve selling the $165 put and buying the $160 put. Then on the calls, selling the $205 call and buying the $210 call.

The price for the condor is $0.40 which means the trader would receive $40 into their account. The maximum risk is $460 for a Risk/Rewards ratio of 11.50 to 1 with a loss probability of 16.1%.

The profit zone ranges between $164.60 and $205.40. This can be calculated by taking the short strikes and adding or subtracting the premium received.

AAPL Iron Condor

Another stock on our high implied volatility screener was Apple.

Let’s look at the first AAPL line item from our screener results. Using the June 20 expiration, the trade involves selling the $180 put and buying the $170 put. Then on the calls, selling the $230 call and buying the $240 call.

The price for the condor is $0.81 which means the trader would receive $81 into their account. The maximum risk is $919 for a Risk/Reward ratio of 11.35 to 1 with a loss probability of 13.0%.

The profit zone ranges between $179.19 and $230.814.

UNH Iron Condor

UnitedHealth Group was another stock with both a high IV Percentile and IV Rank from our initial screener.

The first UNH example from our screener uses the June 6 expiry and involves selling the $275 put and buying the $245 put. Then on the calls, selling the $365 call and buying the $395 call.

The price for the condor is $2.89 which means the trader would receive $289 into their account. The maximum risk is $2,711 for a Risk/Reward ratio of 9.38 to 1 with a loss probability of 20.0%.

The profit zone ranges between $272.11 and $367.89. 

Mitigating Risk

Thankfully, iron condors are risk defined trades, so they have some build in risk management. Position sizing is crucial to ensure that minimal damage is done if the trade suffers a full loss.

One way to set a stop loss for an iron condor is closing the trade if the loss is greater than 1.5 times the premium received. The first example on ABBV received $40 in premium, so a stop loss could be set if the trade is down $60.

Iron condors can also contain early assignment risk, so be mindful of that if the stock breaks through the short strike and its 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.