An iron condor makes money when the underlying stays inside a chosen price range. You sell an out of the money put and protect it with a lower strike put. On the other side, you sell an out of the money call and buy a higher strike call.
All four options use the same underlying and expiry.
The trade collects a net premium at entry. That credit is your maximum possible profit. Your loss is capped by the protective options, provided you hold all four legs and execute them correctly.
This is mainly a neutral strategy. A mildly bullish or bearish view can be built into the strike selection, but a strong directional view calls for a different trade.
The author notes did not include an actual trade record, so the examples below are hypothetical. Premiums have been chosen to explain the payoff and should not be treated as live quotes.
A Nifty iron condor example
Assume Nifty is trading near 24,000 and you expect it to remain between 23,700 and 24,300 until expiry.
You construct this position:
Buy the 23,500 put at ₹35.
Sell the 23,700 put at ₹70.
Sell the 24,300 call at ₹80.
Buy the 24,500 call at ₹40.
The two sold options bring in ₹150 per unit. The protective options cost ₹75, leaving a net credit of ₹75 before brokerage, exchange fees and statutory charges.
The distance between each pair of strikes is 200 points. Since you received 75 points, the maximum loss on either side is about 125 points. The position earns its full profit if Nifty expires anywhere between the two short strikes, 23,700 and 24,300.
Your expiry break even levels sit at 23,625 on the downside and 24,375 on the upside. Nifty can move beyond a short strike without immediately producing an overall loss because the original premium provides a 75 point buffer.
Suppose the contract quantity is 75 units. The gross maximum profit would be ₹5,625, while the maximum loss would be ₹9,375 before trading costs. Contract quantities change, so check the current NSE specification rather than carrying an old lot size into a live order.
That risk to reward ratio deserves attention. One full loss wipes out roughly one and two thirds full profit trades, even before costs enter the calculation. An iron condor can win often and still produce a weak account curve if you allow every losing trade to reach maximum loss.
What happens at expiry
Between 23,700 and 24,300, all four options expire without intrinsic value. You keep the ₹75 credit.
Now assume Nifty settles at 24,340. The short 24,300 call has ₹40 of intrinsic value, while the other options expire worthless. After absorbing that ₹40, the position still retains about ₹35 per unit.
At a 24,420 settlement, the call spread has lost ₹120 against the original credit. The trade finishes with a loss of roughly ₹45 per unit. Once Nifty reaches 24,500 or higher, the long call caps further damage and the loss settles near its 125 point maximum.
The put side works the same way in reverse.
This payoff applies at expiry. Before expiry, the position value also responds to time remaining and changes in implied volatility. Nifty may sit inside your expected range while the iron condor shows a temporary loss because option premiums have expanded.
Which market type suits an iron condor?
A range bound market is the cleanest setting. You want price to remain between the short strikes while time value leaves the options you sold.
Volatility matters too. An iron condor is usually short vega, which means a rise in implied volatility hurts the position. Traders often prefer entry when implied volatility is relatively high compared with its recent readings, provided they expect actual movement to remain contained.
High volatility alone is not a reason to sell. Premiums often rise before the Union Budget, an RBI policy announcement or an election result because the market expects a larger move. Selling an iron condor before that event may collect more credit, but one gap can take price through a short strike before you have a practical exit.
Neutral and range bound
Place the short put below the expected floor and the short call above the expected ceiling. The distances do not need to be perfectly equal, though equal width protective spreads make the maximum loss easier to read.
This version has limited directional bias. Its profit comes mainly from time decay and a reduction in option premiums.
Neutral bullish
If you expect a mild rise rather than a flat market, shift the structure upward. The short put may sit closer to spot while the short call is placed farther away.
With Nifty near 24,000, a trader might choose a 23,900 short put and a 24,400 short call, then buy protective options beyond those strikes. That position has more room on the upside but less tolerance for an early decline.
Be honest about the view. If you expect a forceful rally, a bull call spread or bull put spread expresses it more directly. The call side of an iron condor limits your gains when the bullish forecast proves correct.
Neutral bearish
A mildly bearish condor is shifted lower. The short call sits closer to spot, while the put side gets more room.
For a Nifty level near 24,000, short strikes around 23,600 on the put side and 24,100 on the call side would give the position a bearish tilt. Exact strikes still depend on premiums, expiry and the distance to your protective options.
A sharp fall remains bad for the trade. An iron condor with a bearish tilt is still a range trade, not a substitute for buying a put.
Strongly bullish or bearish
Skip the iron condor.
A trader who expects a large directional move is paying for protection on one side while selling away much of the desired move on the other. A vertical spread usually fits that forecast with fewer legs and lower execution friction.
Choosing strikes without guessing
Many traders choose distant strikes because they appear safe. The premium then becomes so small that brokerage and slippage consume too much of the expected profit.
Delta offers one practical starting point. Some traders sell options near the 10 to 20 delta area, then buy farther out options to cap the loss. Lower delta short strikes usually provide a wider range, though the credit also falls.
The at the money straddle gives another rough reference. If Nifty is at 24,000 and the call plus put premium for the chosen expiry totals around ₹360, the options market is pricing a broad move around that amount. Treat 23,640 to 24,360 as a rough reference, not a promised boundary.
Short strikes placed outside that range may offer more room but very little premium. Strikes inside it pay better because the market sees a greater chance of reaching them.
Support and resistance can help with placement, but a chart level does not cap expiry risk. Price can move through a widely watched level after a gap, especially around scheduled announcements.
The trade earns slowly and can lose quickly
Time decay attracts traders to iron condors, yet the decay is uneven. The position may earn very little during the first several days and then decay faster near expiry.
That faster decay comes with a cost. Gamma also rises near expiry, so a small move in Nifty can change the position value sharply. A condor that looked comfortable in the morning may require action after a one hour move.
Holding until every option expires worthless sounds efficient. I rarely consider it worth the final few rupees. Once most of the original credit has been earned, the remaining reward may be too small for the overnight and expiry day risk.
A trader who collected ₹75 might consider closing around ₹35 to ₹40 if that profit target fits the tested plan. Waiting for the last ₹10 exposes the entire structure to a late move for a small additional return.
Managing a threatened short strike
Suppose Nifty rises toward the short call. You have three practical choices: close the full condor, close the call spread, or roll part of the structure to another strike or expiry.
Closing the complete position is often the cleanest response. It removes both the directional exposure and the chance that a second adjustment creates a more complicated loss.
Some traders move the untested put spread closer to spot and collect extra premium. That can reduce the current loss, but it narrows the profitable range. If Nifty reverses, the position may suffer on the side that originally looked safe.
Set the response before entry. A rule based on the short strike, position loss or option delta is easier to execute than a decision made while premiums are jumping. Neostox can be used to inspect the payoff and practise the order structure before money is placed at risk.
Avoid judging the trade only by whether spot has touched a short strike. Remaining premium, days to expiry and implied volatility all affect the exit value. The expiry break even level is not a stop loss.
Four legs create execution friction
An iron condor requires four option orders at entry and another set when you close it. A small difference in each fill can remove a noticeable part of the credit.
Use a basket order when your broker supports it. Check the combined credit instead of chasing each option separately, since the market can move while you fill the remaining legs.
Margin is another practical issue. The protective options reduce the theoretical loss and usually reduce required margin, but brokers can apply additional expiry day requirements. If one protective leg is closed by mistake, the remaining short option may consume far more margin than expected.
Never assume that “limited loss” means you can ignore available cash. Forced square offs often happen at poor prices.
Index and stock iron condors are not identical in India
Index options are cash settled. Stock derivatives have physical settlement rules at expiry, which can create delivery obligations and sharply higher margin requirements during the expiry period.
This catches traders who focus only on the payoff graph.
If you trade an iron condor in a stock option, read your broker’s physical settlement policy before entering the position. Closing the trade before expiry is usually simpler for a beginner. An apparently controlled ₹8,000 option loss is not the only concern if the account cannot meet the delivery margin attached to an in the money stock contract.