Iron Condor

The thesis

An Iron Condor is a bet that the market will do nothing. You sell premium on both sides of the current spot and protect each short with a further-OTM long — creating two vertical credit spreads that share a profit zone in the middle.

It's the go-to structure for post-event drift, low-IV grind, or consolidation ranges. You are collecting theta every day and praying realised volatility stays below what implied volatility priced in when you opened.

The trade-off is asymmetric: you win small, frequently — and lose large, rarely. If the wings are too tight, a single bad expiry can erase months of carefully collected credits. Discipline on sizing and wing placement is everything.

Construction

Four legs, same expiry: a short OTM call with a long further-OTM call wing, and a short OTM put with a long further-OTM put wing. Both wings are usually equidistant and equal in width.

When it works

• Spot closes inside the short strikes at expiry — ideally near the centre.
• Implied volatility is elevated at entry, making premium juicy; then IV compresses.
• No surprise catalysts hit between entry and expiry.
• Realised volatility is below what the short strikes implied.

When it fails

• Breakout. A sharp directional move breaches one of the short strikes — the tested side becomes a max-loss spread.
• IV expansion. Even without a big move, a jump in IV can mark the position into a temporary loss and force panic exits.
• Whipsaw. Spot tests both sides within the expiry window — adjusting twice compounds losses.
• Tight wings on a thin market. Narrow profit zone + slippage on four legs = reward-to-risk that doesn't justify the exposure.

Greeks at entry

The iron condor is the textbook short-gamma, short-vega, positive-theta trade. Time is the friend, realised volatility is the enemy.

Example trade (educational only)

Nifty spot at 22,500, monthly expiry 25 days away. You sell the 22,700/22,900 call spread for a net credit of ₹35 and the 22,300/22,100 put spread for a net credit of ₹35. Total credit = ₹70 × 75 = ₹5,250 per lot.

Max profit = ₹5,250. Max loss = wing width (200) − credit (70) = ₹130 × 75 = ₹9,750. Break-evens at expiry: 22,230 and 22,770.

• Spot closes at 22,500 → all four options worthless → full credit kept = +₹5,250.
• Spot closes at 22,650 → inside shorts → full credit = +₹5,250.
• Spot closes at 22,770 → breakeven on call side → ₹0.
• Spot closes at 22,850 → short call spread loses ₹150, put spread keeps ₹35 → net −₹115 intrinsic + ₹70 credit = −₹45 × 75 = −₹3,375.
• Spot closes at 22,900 or above → full wing width lost on call side, put wing kept → −₹9,750.
• Spot closes at 22,100 or below → same on put side → −₹9,750.

Adjustments & exits

• Book at 50% of max profit. The "probability of touch" risk grows as expiry approaches — don't grind for the last rupee.
• Roll the untested side. If spot drifts toward one short, roll the opposite spread closer to collect more credit and recentre the payoff.
• Defend with a new spread. If the short strike is breached, deploy an intra-spread inside the losing side or open an opposing vertical to offset.
• Hard stop at 2× credit. If losses hit twice the collected credit, close. Do not add to a loser.

Who should study this

Theta traders, premium sellers, and anyone who wants to understand how "income" strategies actually behave when the tape disagrees. The iron condor forces you to size small, respect tail risk, and treat adjustments as a pre-planned rulebook rather than a panic response.

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