The rules at a glance
- Setup: sell an out-of-the-money call and put (300 points away in the example), and buy a further call and put the same distance beyond them as protection (another 300 points)
- Maximum profit: the net premium, if the Nifty finishes between the short strikes
- Maximum loss: the width of one wing minus the net premium, if the Nifty finishes beyond a protective strike
- Exit: buy back at about half the maximum profit, or if the loss reaches the size of the premium collected
- Why: a short strangle with a ceiling on the loss, and a much smaller margin
The four legs
An iron condor is two credit spreads put together: a bear call spread above the market and a bull put spread below it. You sell the inner strikes, which collect most of the premium, and buy the outer ones, which cost a little but cap the loss. If the Nifty finishes between the two short strikes, all four options expire worthless and you keep the net premium.
Profit or loss at expiry
| Leg | Strike | Premium | For one lot of 65 |
|---|---|---|---|
| Sell | 25,300 CE | 54.20 | 3,523.00 |
| Buy | 25,600 CE | 12.00 | 780.00 |
| Sell | 24,700 PE | 42.10 | 2,736.50 |
| Buy | 24,400 PE | 7.95 | 516.75 |
| Iron condor, 1 lot | |
|---|---|
| Net premium | ₹4,963 received |
| Maximum profit at expiry | ₹4,963 |
| Maximum loss at expiry | ₹14,537 |
| Breakeven at expiry | 24,623.65 and 25,376.35 |
| Reward : risk | 1 : 2.93 |
| If the Nifty is 2% higher or lower at expiry | −₹8,037 |
| If the Nifty is 4% higher or lower at expiry | −₹14,537 |
| STT on the two sales (0.15%) | ₹9 |
The net premium is 76.35 points. The maximum loss is the wing width, 300 points, minus that premium, 223.65 points, or ₹14,537 for a lot. Notice that the loss stops growing beyond the protective strikes: a 4% move costs the maximum, ₹14,537, while a 2% move, which ends between a short and a long strike, costs ₹8,037. On the short strangle, a 4% move costs ₹35,107.
Choosing the strikes and wings
- Short strikes. These decide how often you win. Closer strikes collect more but are hit more often. In the example they're 300 points away, about 1.2%.
- Wing width. This decides the maximum loss. Wider wings collect a little more premium but raise the worst case; narrower wings cut it. Equal wings on both sides keep the position balanced.
- The ratio. Most iron condors risk more than they can make, as here: about 2.9 rupees at risk for each rupee of maximum profit. That's normal, and it's why the win rate has to be high and the exits disciplined.
The rules, step by step
- Pick a quiet week. Avoid weeks with RBI policy, the budget or other big scheduled events.
- Buy the wings and sell the short strikes, as one order if your broker allows it. Buying the protective legs first lowers the margin on the sold ones with most brokers.
- Take profit at about half the maximum. Holding for the last part of the premium means carrying the most risk for the least reward.
- Cut it if the loss reaches the premium collected. Or if the Nifty reaches a short strike before expiry.
- Close before the last hour of expiry day if the Nifty is near a short strike, to avoid a sudden swing settling the trade at the worst point.
Margin and costs
Because the loss is capped, an iron condor needs much less margin than a naked strangle. The exact figure depends on the exchange's margin rules on the day; check your broker's margin calculator. Costs are higher per trade, though: four orders to open and up to four to close, each with brokerage and exchange charges, plus STT of 0.15% on the two options you sell.
Common mistakes
- Wings so far out they barely protect. They cost almost nothing, but the maximum loss becomes huge.
- Holding a tested side to expiry. The maximum loss is capped, but it's still nearly three times the profit.
- Legging in badly. Selling first and buying the wings later can leave you naked in a fast market.
- Ignoring costs. With four legs and small premiums, charges take a real share of the profit.
How to test it before you trade it
TradingView's Strategy Tester works on one chart at a time, so it can't test a multi-leg option strategy that sells new strikes every week. Testing an option strategy works differently from the chart strategies on this site.
- Check the shape with today's prices. Put the live premiums into the payoff calculator and note the breakevens, the maximum loss and the result if the Nifty moves 2% or 4%.
- Check the margin. Use your broker's margin calculator for the whole position. Hedged positions need much less than naked ones.
- Backtest on past option prices. Some Indian platforms, such as AlgoTest, let you test option strategies on historical Nifty option data. Include costs and slippage.
- Paper trade it first. Paper trade the condor for a couple of months of expiries, and note how often a short strike was tested and what the exit rules did.
- Keep a journal. Write down the entry, the exit, the reason and the result for every trade. A trading journal shows quickly whether your exits follow your rules.
With one trade per weekly expiry, 100 trades take about two years. Judge a selling strategy on a long sample: it can win for months and then give much of it back in one bad week.
Try it in the payoff calculator, and get the PDF
Open the iron condor in the free payoff calculator with these legs filled in, then type in today's premiums from your option chain to see the real breakevens and maximum loss. The PDF is a one-page cheat sheet with the rules, the payoff diagram and a checklist.
Nifty options and the rules in India
Nifty options trade on NSE and are legal for residents through a SEBI-registered broker. SEBI tightened the rules for index derivatives in stages: from 20 November 2024, weekly options on only one benchmark index per exchange, a minimum contract value of ₹15 lakh and an extra 2% extreme loss margin on short options on expiry day; from 1 February 2025, option premiums collected upfront. Since 1 April 2026, STT on options sold is 0.15% of the premium. Check your broker's current margin and charges before you trade.
The odds are worth knowing. SEBI found that 93% of individual traders in equity futures and options lost money over FY22 to FY24, and 91% did in FY25. Nothing on this page is advice about what the Nifty will do; it explains how the strategy works and what it risks.
Related strategies: Nifty option selling, short strangle, straddle, bull put and bear call spreads, opening range breakout, VWAP pullback. Build any of them in the payoff calculator. All 34 strategies are compared on one page on the trading strategies page.