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Iron Condor

Sell an OTM put spread and an OTM call spread to profit from a range-bound market with fully defined risk.

What is a Iron Condor?

An Iron Condor is a market-neutral, range-bound income strategy built from four legs: a bull put spread below the market and a bear call spread above it. You collect two credits and keep them in full if the underlying finishes between the two short strikes at expiry. Both long wings cap the risk on each side, making the maximum loss fully defined. It is the classic strategy for earning premium when you expect the market to trade sideways within a band — and one of the most popular income structures among Indian index option sellers.

Payoff Diagram

Profit & Loss at expiry

Per share (multiply by lot size 75). Gold dots mark breakeven points; green = profit, red = loss.

19400197002030020600BE 19600BE 20400+136-500-236Underlying price at expiry
Max Profit
Total net credit received (kept if price finishes between the two short strikes).
Max Loss
(Width of one spread − Net credit) — occurs beyond either long wing.
Breakeven
Lower breakeven = Short put strike − Net credit; Upper breakeven = Short call strike + Net credit.
Outlook
Neutral (range-bound)

Construction

  • Sell 1 OTM Put + Buy 1 further-OTM Put (bull put spread).
  • Sell 1 OTM Call + Buy 1 further-OTM Call (bear call spread).
  • All four legs share the same expiry; net credit received = maximum profit.
  • The four strikes form a 'body' (the short strikes) and two protective 'wings'.

When to Use It

Deploy when you expect low volatility and a range-bound market — after a big move has exhausted, or in quiet consolidation. Enter when IV is high (rich premium) and you expect it to fall. Manage or roll before expiry if price approaches a short strike.

The Greeks

Near-zero net Delta at entry, Positive Theta (time decay is your engine), Negative Vega (rising IV hurts, falling IV helps), Negative Gamma (large moves hurt).

Risks & Considerations

  • A strong trending move through either short strike drives the position toward maximum loss.
  • Negative Gamma means losses accelerate as price nears a short strike close to expiry.
  • Four legs mean higher transaction costs and slippage — execution matters.
  • Rising implied volatility can show mark-to-market losses even inside the range.

Worked Example (Nifty)

Illustrative trade — lot size 75

Nifty at 20,000. Sell 19,700 PE (₹90) / Buy 19,400 PE (₹40) → credit ₹50. Sell 20,300 CE (₹90) / Buy 20,600 CE (₹40) → credit ₹50. Total credit = ₹100 × 75 = ₹7,500 (max profit) if Nifty expires between 19,700 and 20,300. Each spread is 300 wide, so max loss = (300 − 100) × 75 = ₹15,000. Lower breakeven 19,600, upper breakeven 20,400.

Frequently Asked Questions

Why four legs instead of a naked strangle?
The long wings convert an unlimited-risk short strangle into a defined-risk position, dramatically cutting margin and capping catastrophic losses. You collect less premium but sleep better.
How wide should the wings be?
Wider wings collect more credit but risk more capital; narrower wings are cheaper to insure but reduce the credit. A common approach is symmetric wings sized to a comfortable max loss.
When should I adjust or exit?
Many traders take profit at 50% of max credit, or roll the tested side (the spread being breached) further out. Avoid holding a threatened condor into expiry due to gamma risk.
Is IV high or low better for entry?
High IV is better for entry — you collect richer premium and benefit if volatility reverts lower. Selling condors in very low IV gives thin credit for the same risk.
What is the difference from an Iron Butterfly?
An Iron Condor sells OTM strikes with a gap between them (wider profit zone, smaller credit). An Iron Butterfly sells ATM strikes at the same point (bigger credit, narrower profit zone).
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Educational content only — not investment advice. The example above uses illustrative numbers and does not reflect live market prices. Options trading involves substantial risk. See our Risk Disclosure and SEBI Disclaimer.