The Iron Condor

The last chapter ended with a promise. You can collect option premium and bet on calm without exposing yourself to the bottomless loss of a naked short strangle. The trade that keeps the income idea but caps the disaster is the iron condor, and it is the most popular defined-risk income strategy in the world for good reason. It pays you a credit upfront, it wins quietly if RELIANCE stays in a wide range, and crucially, both ends of its risk are bolted down by options you buy as insurance. There are four legs, which sounds intimidating, so this chapter walks all four slowly until the shape makes plain sense. By the end you will read the condor's payoff as easily as you read a long call.

Four legs, two spreads

An iron condor is really just two credit spreads stacked together, one below the spot and one above it. Below, you build a bull put spread. Above, you build a bear call spread. Both bring in credit, and both are defined-risk because each has a bought wing protecting it. Here are all four legs, every one expiring 28 July 2026.

Read them in pairs. Legs 1 and 2 are the put side: you sell the 1280 put for income and buy the cheaper 1240 put below it as a floor on your loss. Legs 3 and 4 are the call side: you sell the 1360 call for income and buy the cheaper 1400 call above it as a ceiling on your loss. The two sold options in the middle, the 1280 put and the 1360 call, are the engines that generate your credit. The two bought options on the wings, the 1240 put and the 1400 call, are the insurance that turns unlimited risk into a known, small number.

Add up the cash. You collect Rs 7,381 and Rs 7,795 from the sold options, and you pay Rs 2,834 and Rs 3,394 for the bought wings. The net credit is about Rs 8,948, and that is the most you can make.

Reading the real payoff

The diagram below is the genuine payoff, built on RELIANCE at spot Rs 1,318, strikes on the 20-rupee grid around ATM 1320, lot 500, about 32 days to expiry. The solid white line is value at expiry, the dotted cyan line is today, the amber dotted vertical is the spot at 1320, and the two amber dots mark the breakevens.

The shape is a flat-topped plateau, like a mesa, with the ground falling away to a fixed lower level on each side. Walk it from the middle out.

The plateau in the centre is your profit zone. Anywhere RELIANCE finishes between 1280 and 1360, all four options behave kindly. Both sold options expire worthless, both bought wings expire worthless, and you keep the entire net credit of Rs 8,948. This is a wide band, 80 rupees of room, and the position does not care where in that band price lands. This is the income the condor is designed to harvest.

The slopes down each side are where price has moved against you. Below 1280, your sold put starts losing value and the line slopes down. Above 1360, your sold call does the same. The line crosses zero at the two breakevens, 1262 and 1378. Those sit about 18 rupees outside the short strikes, which is the net credit per share giving you a cushion. Between 1262 and 1378 you still keep something; outside them you are in a loss.

The flat shelves at the far edges are your capped loss. Once price falls past your bought 1240 put, that wing kicks in and stops the bleeding. Once price rises past your bought 1400 call, the same happens on the upside. The loss flattens at a maximum of Rs 11,052 and goes no further, no matter how far RELIANCE travels. That flat shelf is the whole point of the wings. The naked strangle had a bottomless pit here; the condor has a floor you chose in advance.

The three numbers

Here is the arithmetic that ties it together. Each wing is 40 rupees wide, so on 500 shares each spread can be worth at most Rs 20,000 at expiry. Your maximum profit of Rs 8,948 plus your maximum loss of Rs 11,052 add to exactly that Rs 20,000. The credit you collect decides where the dividing line falls between keeping money and paying out. Collect more credit and your breakevens widen and your max loss shrinks, but you usually have to sell strikes closer to the spot to get it, narrowing your safe plateau. Every condor is that trade-off.

Why beginners love it, and the honest catch

The iron condor is a favourite first income trade for sound reasons, but it is not free money, and pretending otherwise is how people get hurt.

• The risk is genuinely defined. Your worst case is Rs 11,052, known before you place the order. No gap, no shock, no overnight move can take more. That hard cap is what makes the condor sleepable in a way the short strangle never is.
• You win on calm and on time. As a net seller of premium, every quiet day pushes the position toward its full profit. The dotted today line sits below the solid expiry line, and it rises toward the plateau as expiry nears, provided price stays in the band. You are paid for boredom.
• The honest catch is the risk-to-reward shape. Look again at the numbers. You are risking Rs 11,052 to make Rs 8,948. You can lose more than you can win on any single trade. The condor wins often but small and loses rarely but slightly bigger. It only works if you actually take profits, size sensibly, and do not let a losing condor run all the way to its maximum loss out of hope.

Choosing the strikes

The strikes you pick set the personality of your condor. Sell the short strikes far from the spot and you get a very wide plateau and a high probability of keeping the credit, but you collect less, so the credit is small and the max loss large. Sell them closer and you collect a fat credit with tighter breakevens, but price has less room before you are in trouble. This particular condor, with shorts at 1280 and 1360 around a 1318 spot, is a balanced, beginner-friendly choice: a wide 80-rupee plateau with a sensible credit.

You can assemble all four legs at once in sandbox trading (analyzer mode in OpenAlgo) and watch the mesa form on the chart. Drag the modelled price across the plateau and out past a wing to feel where the profit holds and where the capped loss locks in. Placing four legs by hand the first few times is also the best way to make the structure feel routine rather than complicated.