Iron Condor Option Strategy - Meaning, Payoff and How it Works

Options trading can give both profit and risk depending on the market move. Some traders use advanced strategies to control these risks. One such strategy is the Iron Condor. It is often used when a trader thinks the market will stay in a certain range. The Iron Condor makes money when prices move less, but the losses are also limited if prices move a lot. By knowing how this strategy works, you can understand why it is popular among experienced traders.

Iron Condor Strategy Explained

The Iron Condor is an options strategy that uses four option contracts at the same time. It is built with:

• Selling one out-of-the-money call option
• Buying one further out-of-the-money call option
• Selling one out-of-the-money put option
• Buying one further out-of-the-money put option

This creates two spreads (a call spread and a put spread) at the same time. Together, they form a “condor” shape in the payoff chart.

The goal is simple: you expect the market price to stay within a set range until expiry. If it does, you keep the premium collected. If the price goes far outside this range, your loss is limited by the options you bought.

In short: Iron Condor = limited profit, limited loss, high chance of small gain.

Payoff: Profit and Loss in Iron Condor

Market Outcome

What Happens

Profit or Loss

Price stays within middle range

You keep the premium from options sold

Maximum profit

Price goes far up or far down

Your losses increase, but are capped by bought options

Limited loss

Price moves slightly outside range

You lose some profit, but not full

Small loss

Key Points:

• Maximum Profit: Limited to the net premium received.
• Maximum Loss: Limited to the difference between strike prices (spread) minus premium.
• Best Case: Market stays stable.
• Worst Case: Market moves strongly up or down.

Example of Iron Condor Payoff

Imagine Nifty is at 20,000.

• You sell a 20,200 call and buy a 20,400 call.
• You also sell a 19,800 put and buy a 19,600 put.
• Net premium received = ₹200.
• If Nifty stays between 19,800 and 20,200 at expiry → you keep ₹200 (profit).
• If Nifty rises above 20,400 or falls below 19,600 → you lose, but the loss is capped.

This shows how the Iron Condor gives steady profit in calm markets but protects you from unlimited loss in volatile ones.

Why Traders Use Iron Condor Strategy?

• Works best in sideways or range-bound markets.
• Gives steady income from option premium.
• Losses are capped and not unlimited.
• Good for traders who prefer less risk and more control.