An Iron Condor is a four-leg, neutral options strategy that combines:
A bull put spread (profits if price stays above a lower level)
A bear call spread (profits if price stays below an upper level)
By selling both spreads with the same expiry but different strikes, you create a wide zone of profitability. The strategy works best when the underlying stays in a defined range with low volatility.
Strategy Structure
Leg
Type
Position
Purpose
Buy lower strike put
Put
Long
Limit downside risk
Sell higher strike put
Put
Short
Collect premium (bull put spread)
Sell lower strike call
Call
Short
Collect premium (bear call spread)
Buy higher strike call
Call
Long
Limit upside risk
All four options are on the same asset with the same expiry.
Example: Iron Condor on Stock XYZ
Stock XYZ is at ₹100. Setup:
Buy ₹90 put @ ₹1
Sell ₹95 put @ ₹3
Sell ₹105 call @ ₹3
Buy ₹110 call @ ₹1
Total net premium collected = ₹4
Payoff Zones
Price at Expiry
Outcome
₹90 or below
Max loss = ₹1
₹91
Lower breakeven
₹95 – ₹105
Max profit = ₹4
₹109
Upper breakeven
₹110 or above
Max loss = ₹1
Breakeven Points
Lower = ₹95 – ₹4 = ₹91
Upper = ₹105 + ₹4 = ₹109
Payoff Overview
Max profit = ₹4 (net premium)
Max loss = ₹1 (spread difference – credit)
Best case = Price closes between ₹95 and ₹105
Probability of success = High (wide profit zone)
Key Characteristics
Feature
Description
Market view
Neutral / range-bound
Reward profile
Limited (premium collected)
Risk profile
Limited (spread width – credit)
Time decay benefit
Yes (theta works in favor)
Volatility setup
Sell when IV is high, buy back when it falls
Strikes
Out-of-the-money strikes often preferred
Why Traders Use Iron Condors
Generate regular income in stable markets
Profit from overpriced premiums in high-IV environments
Benefit from theta while keeping risk defined
High probability trade with limited risk
Risks and Challenges
Risk
Notes
Sharp movement
Breaches breakevens, leading to loss
Margin requirement
Four-leg spreads need capital allocation
Event exposure
Risky before earnings, policy, or major events
Summary Table
Parameter
Value
Legs
4 (bull put + bear call spread)
Max profit
Net premium collected (₹4 in example)
Max loss
Spread width – net credit (₹1 in example)
Breakeven range
Between short put – credit and short call + credit
Ideal market
Neutral / sideways
Time decay
Positive benefit
Margin use
Moderate to high
When to Use an Iron Condor
When the stock or index is expected to stay in a range
When implied volatility is high and expected to drop
When you want high probability trades with limited risk
During sideways phases in Nifty, Bank Nifty, or liquid stocks