Most traders pick a favorite strategy and force it onto every chart. The iron-condor person sells condors in a runaway uptrend; the spread person sells spreads into dead, rangebound tape. The structure should not be a preference — it should be an output of the conditions. Implied volatility, trend, and where the gamma walls sit decide the trade; you just read the rules.
Here is the actual decision tree we use to turn a scored setup into a specific option structure, with the thresholds that gate each choice.
The five inputs that decide everything
Strategy selection takes five readings off the setup:
- Band width — the distance from the put wall to the call wall (the corridor).
- Gamma confidence — how reliable those walls are.
- Trend direction — bullish, bearish, or neutral.
- IV regime — low, normal, or high implied volatility.
- Liquidity — whether enough contracts trade to build the structure cleanly.
Those five readings — most of which come straight from the opportunity score — narrow the universe to one structure.
Start with IV: are you selling or buying premium?
Implied volatility sets the entire posture. It answers the first question before structure even comes up: should you be a net seller or a net buyer of options?
- IV in the 20–50% sweet spot: premium is rich enough to sell — favor credit structures (condors, spreads).
- IV below 25% with vol mean-reverting: premium is cheap — a debit/calendar structure that benefits from vol expanding becomes attractive.
- IV above 50%: the market is stressed — treat as a danger flag and demand a wider margin, or pass.
If you only remember one thing: high IV means sell, low IV means buy (or wait). For the full treatment, see implied volatility rank explained.
The structure decision tree
With IV setting the posture, trend and the gamma corridor pick the exact structure. These are the real gates:
| Structure | Fires when |
|---|---|
| Iron Condor | Neutral trend, band width 3–15%, gamma confidence ≥ 60%, and ≥ 50 contracts of liquidity. The clean, narrow-corridor base case. |
| Iron Butterfly | Walls exist but the band has converged below 3% near the money. Narrowest profit zone, highest max profit. |
| Broken-Wing Butterfly | Band too wide for a condor (15–40%) with weak-but-present walls, or 10–35% with confidence ≥ 30% and IV ≥ 25%. Anchors to one wall and zeroes risk on a side. |
| Bull Put Spread | Bullish trend with a put wall providing support. Sell the put at the floor, buy protection below. |
| Bear Call Spread | Bearish trend with a call wall providing resistance. Sell the call at the ceiling, buy protection above. |
| Calendar Spread | Neutral trend, IV below 25%, and IV running below realized vol (a mean-reversion signal). A long-vol, theta-positive structure for cheap-premium regimes. |
< 25%
20–50%
> 50%
Trend strength gates the choice
Before any structure is chosen, the regime is classified by trend strength (an ADX-style read). This is the gate that stops you from selling a neutral condor into a freight-train trend:
- Strong trend (ADX ≥ 25) with a clear directional bias → a directional spread (bull put or bear call).
- Weak trend (ADX < 20) with reliable gamma and price inside the band → a neutral condor.
- Overbought or oversold without a trend → a mean-reversion directional play.
- Developing trend (ADX 20–25) → conviction is reduced; the idea is more likely to be parked on the watchlist than approved.
Pair this with the score's decision tiers and you get the full filter: a structure is only recommended when the conditions, the corridor, and the regime line up.
Choosing the trade is half the job — managing it is the other half
Once a structure is on, it is evaluated against five states, checked in priority order so the worst problems are handled first:
| Priority | State | Trigger |
|---|---|---|
| 1 | Exit | Loss reaches ~1.5× the credit, or a short strike is breached for two-plus sessions. |
| 2 | Take profit | ~50% of max profit captured (condor); ~25% (butterfly). |
| 3 | Action needed | Short-strike delta climbing toward the money; consider a roll. |
| 4 | Monitor | Delta rising or ≤ 21 days to expiry; watch closely. |
| 5 | On track | Behaving normally; hold. |
The priority ordering matters: you close disasters before you bother optimizing winners. Size every one of these the same disciplined way — see the position sizing framework — and the structure choice becomes one repeatable step in a repeatable process.