Buying power reduction tells a trader what one iron condor ties up. It says nothing about how many an account should carry. Here is the math for one trade, and the three limits ACondor uses to turn it into a position size.
Buying power reduction is one of the first numbers an options trader learns to read on an order ticket, and one of the last numbers most traders learn to plan around. This episode looks at what it measures on an iron condor, why one trade's figure is the wrong number to size an account by, and how ACondor, the options trading software for tastytrade accounts, turns it into a position size.
Start with the definition. Buying power reduction, often shortened to BPR, is the capital a broker sets aside while a position is open. For an undefined risk trade such as a short strangle, that figure comes from a margin formula that moves with price and implied volatility, so it can grow while the trade is on. An iron condor works differently. Its long wings cap the worst case, so the requirement is fixed the moment the trade opens.
The formula is short. Take the width of the wider spread, multiply by 100, and subtract the credit collected. A condor that is 10 points wide and collects two dollars sets aside one thousand dollars less two hundred, or eight hundred dollars per contract.
Why only one side? An iron condor is a short put spread and a short call spread on the same underlying and the same expiration. At expiration the price can finish below the puts or above the calls, but never both. Brokers recognize that, so tastytrade holds the risk of one side only. The second side adds credit without adding risk, which is why a full condor can tie up less capital than a single credit spread of the same width.
There is a second useful fact hiding in that example. On a defined risk trade, the eight hundred dollars set aside is also the maximum loss. Capital held and worst case are the same number. And because the credit is subtracted from the width, a richer credit on the same width actually uses less buying power, not more.
Now the harder question. Most traders size the first condor correctly and then size the account wrong. Eight hundred dollars on a twenty five thousand dollar account looks like about three percent, and the thinking stops there. But a systematic premium selling approach never holds just one condor. It depends on many small positions, spread across underlyings and expiration dates, so that no single result dominates. The real question is how many condors an account can carry at once, with each one small enough that a full loss is survivable, and with enough buying power left free to manage a position that gets tested.
ACondor answers that with three limits, and it checks all three before every entry.
The first is risk per trade, set as a share of net liquidating value. The software's risk profiles put it at three percent for Conservative, five percent for Balanced, and eight percent for Active. This is the limit that sets a practical account floor. A standard 10 wide index condor at 20 delta risks roughly seven hundred to nine hundred dollars, and ACondor plans around nine hundred so its position counts are never optimistic. At a five percent cap, that condor needs about eighteen thousand dollars of net liquidating value. At three percent, about thirty thousand. There is also a ceiling running the other way: no single trade may risk more than one thousand dollars, whatever the account size. A larger account takes more of the same small trade, not a bigger one.
The second limit is allocation, the share of the account the software may deploy across all of its open positions together. By profile that is twenty, thirty five, or fifty percent. This is what turns a per-trade figure into a position count. On a thirty thousand dollar account at thirty five percent, about ten thousand five hundred dollars can be deployed, which is roughly eleven condors at nine hundred dollars each.
The third limit is an account-wide buying power ceiling. The allocation cap only counts positions the software opened. The ceiling counts everything in the account, including trades placed by hand, and it is measured against the broker's own buying power figure. By risk profile, no more than fifty, seventy, or eighty percent of the account's buying power may be in use at once, and an entry that would cross that line is refused. Free buying power is what allows a tested position to be rolled or closed on the trader's terms instead of being forced at the worst moment.
How does the check actually run? ACondor does not estimate. Before an order is placed, it asks tastytrade for a dry run of the exact trade, and the broker reports its own buying power effect and fees. The software checks that result against all three limits. If any limit would be exceeded, the trade is declined, not quietly shrunk to fit, and the dashboard records which limit fired and why. Profile limits are derived from account value and only re-derive when that value moves twenty percent from where they were last set, so a strong or weak week does not change position size without a record of it.
A word on what sizing limits do not do. They control how much of an account is exposed to any one trade and to all trades together. They do not prevent losses. ACondor is software, not investment advice. Nothing here is a guarantee of any trading result, and options trading carries substantial risk of loss.
The account requirements are listed at acondor.com slash requirements. Traders who want per-trade, allocation, and buying power limits checked against tastytrade's own numbers before every entry can request early access at acondor.com slash early access. ACondor LLC City: Las Cruces Address: 2521 North Main Street, Las Cruces Website: https://acondor.com Phone: +1 575 312 9326