What is an Iron Condor? A Simple Guide for Indian Traders
An iron condor is a four-leg options strategy that earns a small, fixed profit when a stock or index stays inside a price range. You sell a call and put closer to the price, and buy a call and put further away for safety. Both maximum profit and loss are fixed.
The iron condor is a favourite range-bound strategy. It earns a small profit when the market stays quiet, with both risk and reward capped from the start.
This explainer keeps the language simple and the examples Indian. You can trade it on Stockk.
Key Takeaways
- It profits when price stays inside a range.
- It uses four legs: two sold, two bought for safety.
- Both maximum profit and loss are fixed.
- It works best in calm, range-bound markets.
- A big move is the main risk, but losses are capped.
How does an iron condor work?
Let us say NIFTY trades at 22,600. You sell the 22,800 call at ₹95 and the 22,400 put at ₹90 for income, then buy the 23,000 call at ₹45 and the 22,200 put at ₹40 as protection. The net credit is ₹100, which is your maximum profit if NIFTY finishes between 22,400 and 22,800. The bought wings cap the maximum loss at ₹100, and the breakevens are 22,300 and 22,900.
The four legs explained
- Sell 1 OTM call: just above the price, to collect premium
- Buy 1 further OTM call: to cap the loss if price rises sharply
- Sell 1 OTM put: just below the price, to collect premium
- Buy 1 further OTM put: to cap the loss if price falls sharply
Maximum profit, loss and breakeven
Max Profit = Net Premium Received
Max Loss = Width of one side minus Net Premium
The width of one side is the gap between the sold and bought strike on that side. Both maximum profit and loss are fixed before you enter, which is the strategy's big advantage.
Iron condor vs short strangle
| Feature | Iron Condor | Short Strangle |
|---|---|---|
| Legs | Four | Two |
| Maximum loss | Fixed and capped | Open-ended |
| Premium | Lower | Higher |
| Protection | Yes (wings) | None |
Want to apply this? Trade iron condor and other strategies on Stockk, open a free demat account, and keep exploring the Knowledge Center for deeper dives.
Futures and Options are leveraged products and carry a high risk of loss that can be more than the money you put in. This article is only for learning and is not a recommendation to trade in derivatives.
Frequently Asked Questions
Is an iron condor good for beginners?
It is one of the safer option-selling strategies because risk is capped, but it has four legs and needs careful strike selection, so start small.
How much can I lose in an iron condor?
Your maximum loss is fixed: the gap between the sold and bought strike on one side, minus the premium collected. You can never lose more.
When does an iron condor make the most profit?
When price finishes between your two sold strikes at expiry, so all four options expire worthless.
Why buy two extra options if they cost money?
The two bought options are your insurance; they lower income but turn an unlimited-risk trade into a safe, defined-risk one.
Is an iron condor better than a short strangle?
It collects less but caps the risk, while a strangle collects more with open-ended risk.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
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