Iron Condor – Neutral, Range-Bound Option Strategy

What is an Iron Condor?

An Iron Condor is a popular neutral options strategy used when a trader expects the market to remain range-bound. It involves selling an out-of-the-money call and put, while simultaneously buying a further OTM call and put to cap risk. This creates a 4-leg strategy that profits from time decay and stability, rather than directional moves.

The Iron Condor is often favored by intermediate and professional traders who want steady income with defined risk. It earns maximum profit when the underlying closes between the two short strikes at expiry.

• Risk is limited: The long call and long put cap losses on both sides.
• Profit is limited: Capped at the net premium collected.
• Steady income: Profits from time decay in range-bound markets.

When to Use an Iron Condor

The Iron Condor is best when you expect low volatility and sideways movement. It’s ideal for traders who prefer steady, consistent income rather than betting on big moves.

• You expect the market to remain within a range.
• You want to generate steady income from premiums.
• You prefer defined risk over unlimited exposure.
• You believe volatility will stay low or decline.

Setup Checklist

• Underlying: Choose highly liquid indexes like NIFTY or BankNIFTY.
• Strikes: Select equidistant OTM call and put to sell, hedge with further OTM options.
• Expiry: Weekly or monthly works, depending on view.
• Volatility: Best deployed when implied volatility is relatively high and expected to drop.

Entry Rules

1. Sell 1 OTM Call option (above spot).
2. Buy 1 further OTM Call option (higher strike).
3. Sell 1 OTM Put option (below spot).
4. Buy 1 further OTM Put option (lower strike).
5. Collect net premium upfront — this is your maximum profit potential.

Risk & Management

The Iron Condor requires constant monitoring of ranges and time decay:

• Downside risk: Limited to spread width minus net premium.
• Upside risk: Also limited due to long call hedge.
• Time decay (Theta): Works strongly in your favor if market stays flat.
• Volatility (Vega): Falling volatility helps the position.
• Adjustment: If market trends, you may roll or shift strikes to rebalance.

Exit Rules

• If market stays in range: Hold until expiry or exit early to book profit.
• If market starts trending: Close losing side quickly to limit damage.
• If volatility spikes: Reassess — high volatility may hurt your spread value.

Position Sizing & Money Management

• Risk no more than 2–3% of trading capital per Iron Condor setup.
• Avoid overexposing to one expiry or one index.
• Use Iron Condors as part of an income strategy portfolio, not as single large bets.

Example: NIFTY Iron Condor

Assume NIFTY is at ₹25,000:

• Sell 25,500 CE @ ₹110
• Buy 25,800 CE @ ₹40
• Sell 24,500 PE @ ₹120
• Buy 24,200 PE @ ₹50

Net Premium Collected: ₹140 (₹3,500 total)

Max Profit: ₹3,500

Max Loss: ₹4,000

Breakeven: ₹24,360 – ₹25,640

Key Metrics to Track

• Breakeven points: Lower strike – net premium, Upper strike + net premium.
• Max profit: Net premium collected.
• Max loss: Spread width – premium × lot size.
• Theta: Time decay works strongly in your favor.
• Vega: Falling volatility is positive.

Advantages of an Iron Condor

• Profits from sideways markets.
• Limited, defined risk on both sides.
• Steady premium income strategy.
• Customizable by adjusting strikes.

Disadvantages of an Iron Condor

• Profit is capped and relatively small compared to risk.
• Big trending moves can cause quick losses.
• Requires strict risk management and discipline.

Comparison: Iron Condor vs Strangle

The Iron Condor is one of the most reliable income strategies for intermediate traders who want to earn from sideways markets while keeping risks defined. It requires discipline, but when used correctly, it’s a powerful addition to an options trader’s toolkit.