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. Maximum loss is one spread's width minus the net credit, taken if price settles beyond either long wing.
Iron Condor: 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.
Iron Condor at a glance
| Category | Neutral Strategies |
|---|---|
| Market outlook | Neutral |
| Risk | Defined risk |
| Net flow | Credit |
| Difficulty | Intermediate |
| Legs | Sell OTM put + buy further OTM put + sell OTM call + buy further OTM call |
| Max profit | ₹89/unit · ₹5,785 per lot |
| Max loss | ₹111/unit · ₹7,215 per lot |
| Breakeven | 23,311 and 24,689 |
Iron Condor 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.
Payoff diagram
Profit & loss at expiry — Iron Condor
| 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 |
Iron Condor: 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 ₹7,215 on one NIFTY lot of 65. 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) × 65 = 111 × 65 = ₹7,215, reached if the underlying settles beyond either long wing.
Computed from the illustrative legs: ₹111 per unit, i.e. ₹7,215 for one NIFTY lot of 65.
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 ₹5,785 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 × 65 = ₹5,785, 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. ₹5,785 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
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.
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.
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.
Vega is negative — the condor is short volatility, so rising implied volatility inflates the spreads it is short and marks the position down.
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
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
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
Iron Condor: 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 × 65 = ₹5,785 for one lot. Each wing is 200 points wide, so the maximum loss is (200 − 89) × 65 = 111 × 65 = ₹7,215. Breakevens are 23,311 and 24,689. If NIFTY settles at 24,000 all four options expire worthless and the full ₹5,785 is kept. If it settles at 24,800 the call spread is fully in the money: loss = ₹7,215. 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 as of July 2026; figures exclude all transaction costs.
Lot sizes used above (NIFTY 65, BANKNIFTY 30) are those in force as of July 2026; NSE revises them periodically. Figures exclude brokerage, STT, exchange charges, stamp duty and GST, all of which materially affect small spreads.
Iron Condor compared with other strategies
Common misconceptions about Iron Condor
- Misconception: An iron condor cannot lose more than the net credit it collects.
Reality: 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.
Common mistakes with Iron Condor
- Treating the theoretical ₹5,785 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.
How professionals use the Iron Condor
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.
Iron Condor: frequently asked questions
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 ₹5,785 on one lot of 65, 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) × 65 = ₹7,215. 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.
Iron Condor: voice-search 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.
Does an iron condor have 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.
People also ask about Iron Condor
Questions answered in depth on their own pages:
Sources & references
Published 9 July 2026. Educational content only — not investment advice.