Neutral Intermediate Defined risk Credit 4 legs

Iron Condor

A four-strike range trade that collects a credit and caps both sides.

Quick answer: An Iron Condor is a defined-risk neutral strategy that sells an out-of-the-money put spread and an out-of-the-money call spread, collecting a net credit that is kept in full if the underlying settles between the two short strikes.

In simple words

An iron condor is a bet that the market stays quiet. You sell one option below the current price and one above it, then buy a cheaper option further out on each side to cap your risk. The two you sell bring in money; the two you buy cost a little and act as insurance. If the index drifts sideways and finishes between the two strikes you sold, everything expires worthless and you keep the money you collected. If it runs far in either direction, the option you bought stops the loss from growing past a fixed amount you knew in advance.

Not to be confused with: An iron condor has four strikes and its two short options straddle a range, whereas an iron butterfly has three strikes and both short options sit on the same central strike. The condor collects far less credit (89 versus 330 here) but profits across a wide band; the butterfly collects much more but needs the underlying to pin its centre.

Payoff diagram

Profit & loss at expiry — Iron Condor

Illustrative NIFTY legs, spot 24,000. Every strategy on this site is priced off one arbitrage-consistent option chain, so no two pages imply different option prices. Figures are per unit; one NIFTY lot is 75 units at the time of writing. The dashed line is the position's theoretical value today, before time decay has run.

Leg	Action	Type	Strike	Premium	Qty
1	Buy	Put	23,200	₹110	1
2	Sell	Put	23,400	₹143	1
3	Sell	Call	24,600	₹156	1
4	Buy	Call	24,800	₹100	1

Market outlook

Neutral

Risk

Defined risk

Net flow

Credit

Max profit

₹89/unit · ₹6,675 per lot

Max loss

₹111/unit · ₹8,325 per lot

Breakeven

23,311 and 24,689

Defined risk. The maximum loss is capped by the position's own structure — a long option leg caps every short one — and is known before entry. That cap holds at expiry. Before expiry the position can still mark against you, early assignment on a short leg can break the structure, and on a physically-settled stock option an assignment can leave you holding the underlying.

Professional explanation

Where the credit comes from

An iron condor is two credit spreads sharing one expiry: a bull put spread below the market and a bear call spread above it. Each spread is sold for more than the protective wing costs, so the position opens for a net credit. On the illustrative chain that credit is 89 per unit. The credit is the entire reward — the position can never make more than what was taken in, and it makes that maximum only if both short options expire worthless, which requires the underlying to finish between the two short strikes at expiry.

Why the loss is capped and where the cap sits

Each short option is paired with a long option 200 points further out. If the index falls through the short put, the long put 200 points below begins to gain at the same rate, so the loss stops growing. The same holds on the call side. The maximum loss is the width of one spread minus the credit: 200 − 89 = 111 per unit. That is a structural cap set by the long wings, which is why the iron condor is a defined-risk position rather than a naked strangle.

The uncomfortable ratio

On these strikes the condor risks 111 to make 89. The reward is smaller than the risk, which is the defining trade-off of a wide, high-probability condor: the profit zone is broad, so it wins more often than it loses, but each loss is larger than each win. A trader who does not understand this arithmetic mistakes a high hit-rate for an edge. The break-even hit-rate here is 111 ÷ (111 + 89), about 55.5%, before any costs — the position must be right more than half the time simply to tread water.

Time and volatility both help, until they do not

Because the position is net short options, time decay works in its favour and falling implied volatility lifts its value. It is happiest in a market that was frightened when the condor was sold — rich premiums — and then calms down. The danger is the opposite: a volatility spike widens both spreads against the position at once, and because the shorts are nearer the money than the longs, the mark-to-market loss can approach the structural cap well before expiry even if price has not yet breached a short strike.

Construction

Sell one out-of-the-money put (here the 23,400 put) to open the lower credit spread.
Buy one further out-of-the-money put (the 23,200 put) as the downside wing.
Sell one out-of-the-money call (the 24,600 call) to open the upper credit spread.
Buy one further out-of-the-money call (the 24,800 call) as the upside wing.
Confirm the position opened for a net credit and that both wings are equally wide, so the maximum loss is symmetric.

Market outlook

A trader may study an iron condor when the view is that the underlying will stay inside a range through expiry and that implied volatility is high enough to make the premiums worth selling. It expresses no directional opinion; it expresses a range opinion. The condition that invalidates it is a decisive breakout or a volatility expansion, either of which pushes the underlying toward or through a short strike. Because the reward is capped and smaller than the capped risk, the structure suits a settled market after an event has passed, not one waiting for a trigger such as a result, a policy decision or an expiry-week squeeze.

Risk profile

The iron condor is a defined-risk position: the maximum loss is capped by the long wings, not by anything external, and is known before entry. The cap equals the width of one spread minus the net credit — 200 − 89 = 111 per unit, or ₹8,325 on one NIFTY lot of 75. That cap holds at expiry. Before expiry the mark can move against the position faster than price alone would suggest, because the short strikes are closer to the money than the long wings and respond more to a volatility spike. On cash-settled index options there is no assignment; on physically settled stock options an early assignment on a short leg can distort the structure overnight.

Maximum loss, stated three ways

As a formula: (Width of one spread − net credit) × lot size. Here (200 − 89) × 75 = 111 × 75 = ₹8,325, reached if the underlying settles beyond either long wing.
Computed from the illustrative legs: ₹111 per unit, i.e. ₹8,325 for one NIFTY lot of 75.
Breakevens: Lower breakeven = short put strike − net credit = 23,400 − 89 = 23,311. Upper breakeven = short call strike + net credit = 24,600 + 89 = 24,689. → 23,311 and 24,689.

Reward profile

The maximum reward is the net credit received, 89 per unit or ₹6,675 on one NIFTY lot, realised in full only if the underlying settles between the two short strikes so that all four options expire worthless. There is no mechanism by which the position can earn more than the credit; the long wings ensure that. The profit is broad rather than deep — it is collected across a wide band of settlement prices, which is why a condor is chosen for its probability of a small win rather than the size of the win.

Maximum profit

As a formula: Net credit received × lot size. Here 89 × 75 = ₹6,675, kept only if the underlying settles between the short put strike (23,400) and the short call strike (24,600) at expiry.
Computed from the illustrative legs: ₹89 per unit, i.e. ₹6,675 for one NIFTY lot.

Margin requirement

Brokers apply SPAN plus exposure margin, but because every short leg is hedged by a long wing the exchange grants spread benefit, so the margin is a fraction of what two naked shorts would attract and is broadly the net risk of one spread. The two spreads do not usually collide, so margin approximates a single vertical rather than the sum of both. NSE and brokers revise margin formulas periodically, and intraday spikes in volatility can raise the requirement while the position is open.

Greeks exposure

Δnegative

Delta is close to neutral at the reference spot because the short strikes sit roughly symmetrically around it; it turns negative as price rises toward the call spread and positive as price falls toward the put spread.

Γnegative

Gamma is close to neutral in net terms at the reference spot, where price sits midway between the short strikes, and turns clearly negative as either short strike is approached — the position is net short options and accelerates against a move near expiry.

Θpositive

Theta is positive: the position is a net seller of premium, so the passage of time erodes the short options in its favour as long as price stays inside the range.

Vnegative

Vega is negative — the condor is short volatility, so rising implied volatility inflates the spreads it is short and marks the position down.

ρnegative

Rho is minor for a monthly index condor and negligible for weeklies; the position is not a meaningful interest-rate bet.

The sign on each Greek above is computed, not asserted: it is the net exposure of the illustrative legs at spot 24,000 with 30 days to expiry, priced with Black–Scholes using each leg's implied volatility calibrated from its own quoted premium. A sign can flip as the underlying moves — the panels below show where. See Methodology.

Net Greeks across underlying prices

Each panel shows the whole position's net Greek, not one leg's. The dashed vertical is the reference spot.

Volatility impact

Rising implied volatility hurts an iron condor. The position is net short options, so an increase in implied volatility raises the value of the spreads it has sold and marks the position to a loss, even if the underlying has not moved, and it does so unevenly because the nearer short strikes carry more vega than the far wings. Falling implied volatility does the reverse and is the tailwind the structure is built to catch. The ideal sequence is to sell the condor when volatility is elevated — after a scare, before an event has been fully priced out — and hold as volatility mean-reverts. Selling into already-low volatility gives thin premium for the same capped risk.

Sensitivity to implied volatility

Position P&L with the underlying pinned at spot and 30 days to expiry, as implied volatility alone moves. This isolates vega from delta.

Time decay

Theta is the condor's engine. As a net seller of four options the position gains value every day the underlying stays inside the range, and that decay accelerates in the final two weeks as the short options lose their remaining time value fastest. The catch is that the same nearness to expiry that speeds decay also raises gamma, so a late move toward a short strike inflicts an outsized loss that the accumulated theta may not cover. The position sits on the steep part of the decay curve near expiry, where the reward per day is highest and the punishment for being wrong is also highest.

Value of the position as expiry approaches

Underlying held still at spot; only time passes. An upward slope means time is working for the position, a downward slope means against it.

Practical examples

NIFTY example

Using the 30-day chain: sell the 23,400 put at ₹143 and buy the 23,200 put at ₹110, a put-spread credit of ₹33; sell the 24,600 call at ₹156 and buy the 24,800 call at ₹100, a call-spread credit of ₹56. Total net credit = 33 + 56 = ₹89 per unit, or 89 × 75 = ₹6,675 for one lot. Each wing is 200 points wide, so the maximum loss is (200 − 89) × 75 = 111 × 75 = ₹8,325. Breakevens are 23,311 and 24,689. If NIFTY settles at 24,000 all four options expire worthless and the full ₹6,675 is kept. If it settles at 24,800 the call spread is fully in the money: loss = ₹8,325. If it settles at 24,689 the position breaks even before costs. These figures exclude brokerage, STT, exchange charges, stamp duty and GST, which matter on a credit this size.

BANKNIFTY example

Illustrative BANKNIFTY premiums, spot near 52,000, lot 30: sell the 50,500 put at ₹260 and buy the 50,000 put at ₹170 for a ₹90 credit; sell the 53,500 call at ₹250 and buy the 54,000 call at ₹140 for a ₹110 credit. Net credit = ₹200 per unit, or 200 × 30 = ₹6,000 for one lot. Each wing is 500 points wide, so the maximum loss is (500 − 200) × 30 = 300 × 30 = ₹9,000. Breakevens are 50,300 and 53,700. If BANKNIFTY settles at 52,000 the ₹6,000 credit is kept in full; if it settles beyond 54,000 or below 50,000 the loss is ₹9,000. Premiums are illustrative and lot sizes are those at the time of writing; figures exclude all transaction costs.

Lot sizes used above (NIFTY 75, BANKNIFTY 30) are those in force at the time of writing; NSE revises them periodically. Figures exclude brokerage, STT, exchange charges, stamp duty and GST, all of which materially affect small spreads.

Common mistakes

Treating the theoretical ₹6,675 as achievable — four legs mean four bid-ask spreads to open and four to close, and a single tick of slippage on each of eight fills can consume a large slice of an 89-point credit.
Selling the condor when implied volatility is already low, which gives a thin credit for the same 111-point capped risk and leaves no cushion if volatility then rises.
Setting the short strikes too close to the money to boost the credit, which narrows the profit zone so far that an ordinary daily range breaches a breakeven.
Ignoring that the maximum loss (111) exceeds the maximum profit (89), so a run of small wins can be wiped out by a single full loss and the position must win well over half the time to break even.
Holding through a volatility event such as a monetary policy decision or a result, where a gap can jump straight past a short strike and realise most of the capped loss at once.
Adjusting an untested condor out of boredom, converting a defined-risk position into a wider, costlier one and paying two more sets of spreads to do it.

Advantages & disadvantages

Advantages

Both the maximum profit and the maximum loss are fixed and known before the trade is placed, so the position can be sized precisely against an account.
The wide gap between the short strikes gives a broad profit zone, so the underlying can move a fair distance in either direction and the position still expires at maximum profit.
Because every short leg is hedged by a long wing, the margin required is a fraction of a naked strangle and does not carry the tail risk of an unhedged short option.
Time decay works for the position every day the underlying stays in range, and a fall in implied volatility adds to the gain, so two of the three main forces can favour it at once.
On cash-settled NIFTY and BANKNIFTY options there is no assignment or delivery risk, so a four-leg structure settles cleanly at the exchange settlement price.

Disadvantages

The capped loss is larger than the capped credit, so the strategy needs a high hit-rate merely to break even and a single full loss undoes several wins.
Rising implied volatility marks the position to a loss even when price has not moved, and the nearer short strikes make that mark move faster than intuition suggests.
Eight commissions and eight bid-ask spreads over the life of the trade are a heavy drag on a credit measured in tens of points per unit.
The reward is capped, so the position cannot benefit from being unusually right — a perfectly quiet month pays exactly the same 89 points as a barely-quiet one.
Gamma near expiry means a late move toward a short strike can convert a comfortable winner into a full loss within a single session.

Adjustments & exits

Rolling the untested spread closer to the money to collect more credit, which raises the potential profit but also narrows the safe range and increases the loss if that side is then breached.
Rolling the whole condor out to a later expiry when it is tested, which buys time but pays a fresh set of spreads and re-exposes the position to a longer window of risk.
Closing the tested spread and leaving the untested spread to expire, which removes the threatened side for a cost and turns the remaining position into a single credit spread.
Buying back both short options for a fraction of the credit late in the cycle to remove gamma risk, accepting a smaller profit in exchange for eliminating the chance of a late reversal.

Adjustment is a decision about risk, not a way to rescue a losing view. See Adjustments and Exit Planning.

Professional usage

Desks run condor-like structures as short-volatility inventory, sizing them by the vega and gamma they add to a book rather than by the rupee credit of a single position. An institution can leg into the four options across the day to capture better fills, hedge the residual delta with index futures, and hold many condors across strikes and expiries so that the portfolio, not any one trade, expresses the range view. Retail traders cannot replicate the cross-margining, the execution quality or the ability to warehouse the position through a drawdown, so a desk's comfort with the structure does not transfer directly to a single account.

Key takeaway

An iron condor pays you to be right about a range, but it pays less than it can lose, so it lives or dies on how often the market stays quiet and how cheaply you can enter and exit four legs.

Frequently asked questions

What is an iron condor?

An iron condor is a four-leg, defined-risk neutral option strategy that sells an out-of-the-money put spread and an out-of-the-money call spread on the same expiry. It collects a net credit, kept in full if the underlying settles between the two short strikes, with both profit and loss capped.

What is the maximum profit on an iron condor?

The maximum profit is the net credit received, kept only if the underlying settles between the two short strikes at expiry. On the illustrative NIFTY chain that is 89 per unit, or ₹6,675 on one lot of 75, before brokerage and taxes.

What is the maximum loss on an iron condor?

The maximum loss is the width of one spread minus the net credit, times the lot size. Here (200 − 89) × 75 = ₹8,325. It is reached if the underlying settles beyond either long wing, and it is fixed and known before entry.

Where are the breakeven points?

The lower breakeven is the short put strike minus the credit, and the upper breakeven is the short call strike plus the credit. On the illustrative chain that is 23,400 − 89 = 23,311 and 24,600 + 89 = 24,689. Between these the position is profitable at expiry.

Is an iron condor good for beginners?

It is often the first four-leg structure a trader studies because both the profit and loss are capped, but it is not simple: the loss exceeds the credit, execution across eight fills is costly, and rising volatility can hurt it even when price stays still. Understanding those before trading matters more than the label.

How much margin does an iron condor need?

Because each short leg is hedged by a long wing, the exchange grants spread benefit and the margin is roughly the net risk of one spread — a fraction of a naked strangle. Exact figures follow SPAN plus exposure and are revised periodically by NSE and brokers.

What happens to an iron condor at expiry?

If the underlying settles between the two short strikes, all four options expire worthless and the full credit is kept. If it settles beyond a long wing, that spread is fully in the money and the maximum loss is realised. On index options this settles in cash at the exchange settlement price.

Does an iron condor have assignment risk?

On cash-settled NIFTY and BANKNIFTY options there is no assignment — the structure settles in cash. On physically settled stock options a short leg can be assigned early, which can distort the position overnight and turn a tidy structure into an unbalanced one.

When does an iron condor lose money?

It loses when the underlying moves decisively toward or beyond a short strike, or when implied volatility rises sharply and marks the short spreads up. A gap through a short strike after an event is the classic way the full capped loss is realised at once.

How does implied volatility affect an iron condor?

The condor is short volatility. Rising implied volatility inflates the spreads it has sold and marks it to a loss even without a price move; falling volatility does the opposite and is the tailwind it is built to catch. Selling when volatility is elevated gives a fatter credit for the same capped risk.

How wide should the strikes be?

Wider gaps between the short strikes give a broader profit zone but a smaller credit; narrower gaps give more credit but a higher chance of a breach. The choice trades probability of profit against size of profit; there is no single correct width, only the one that matches the range being expressed.

Can I adjust an iron condor that is being tested?

A trader may roll the tested spread out in time, roll the untested spread closer to collect more credit, or close the threatened side. Every adjustment costs a fresh set of spreads and changes the risk; adjustment is a decision about risk, not a way to rescue a wrong view.

How is an iron condor different from a short strangle?

A short strangle sells an out-of-the-money put and call with no protective wings, so its loss is undefined. An iron condor adds long wings that cap the loss. The condor collects less credit in exchange for a known maximum loss and much smaller margin.

How is an iron condor different from an iron butterfly?

An iron condor uses four strikes with the shorts straddling a range; an iron butterfly uses three strikes with both shorts on the same central strike. The butterfly collects far more credit but needs the price to pin its centre; the condor collects less but profits across a wide band.

What is the ideal market for an iron condor?

A range-bound, calming market where implied volatility was elevated at entry and then falls, and where no major event threatens a gap before expiry. The structure is unsuited to a market waiting on a result, a policy decision or an expiry-week squeeze.

Can I lose more than the credit I received?

Yes. The credit is the maximum profit, not the maximum loss. The loss can be as large as one spread's width minus the credit — here 111 per unit against an 89-point credit — so a single full loss exceeds the credit collected.

How many lots should I trade?

That depends on account size and the fixed maximum loss per lot, which here is ₹8,325. Sizing by the known worst case rather than by the credit is the point of a defined-risk structure; the credit tells you the most you can make, not the risk you are taking.

Does time decay help an iron condor?

Yes, as long as the underlying stays in range. The position is a net seller of four options, so theta erodes them in its favour every day, fastest in the final two weeks. That same nearness to expiry raises gamma, so a late move is punished sharply.

Should the two wings be the same width?

Equal wings give a symmetric maximum loss on both sides, which is the standard construction. Unequal wings shift more risk to one side and turn the position into a skewed structure closer to a condor with a broken wing, changing where and how large the loss can be.

What costs eat into an iron condor?

Brokerage, STT, exchange transaction charges, stamp duty and GST apply to all eight fills over the life of the trade. On a credit of 89 per unit these are material and reduce both the realised profit and the effective breakevens; they should be estimated before entry.

Which is more likely, the maximum profit or the maximum loss?

With wide strikes the maximum profit zone is broad, so a small win is more likely than a full loss on any single trade. But the loss is larger than the win, so a higher win-rate is needed just to break even; likelihood and payoff pull in opposite directions.

Voice search & related questions

Natural-language questions people ask about the Iron Condor.

What is an iron condor?

An iron condor is a defined-risk neutral option strategy that sells an out-of-the-money put spread and call spread on the same expiry, collecting a net credit you keep if the underlying finishes between the two short strikes. Both the profit and the loss are capped in advance.

Which option strategy has limited risk?

Many do — the property is defined risk, where a long option leg caps the loss. Iron condors, iron butterflies, verticals and long butterflies all have a maximum loss fixed before entry. No single one is the answer; the shared feature is a structural cap on the loss.

Is an iron condor safe for beginners?

Both sides of an iron condor are capped, which makes it less dangerous than naked selling, but it is not simple. The loss is bigger than the credit, eight fills are costly, and a volatility jump can hurt it while price stands still. Understand those trade-offs first.

How much can I make on an iron condor?

At most the net credit you collected, kept only if the underlying settles between your two short strikes. On the illustrative NIFTY chain that is 89 points, about ₹6,675 for one lot before costs. You cannot make more than the credit — the wings prevent it.

What happens to an iron condor if the market crashes?

A sharp fall pushes the underlying toward and through the short put, and rising volatility marks the position down further, so the loss grows quickly toward its cap. But the long put wing stops the loss at a fixed amount — here 111 per unit — no matter how far the market falls.

Sources & references

Last reviewed 9 July 2026. Educational content only — not investment advice.