Definition
Iron Condor
An iron condor sells an out-of-the-money call spread and put spread to earn premium in a range-bound market with defined risk.
It combines a bull put spread and a bear call spread: you sell an out-of-the-money put and call (collecting premium) and buy further-out wings to cap the risk on each side. You profit if the underlying stays between the two short strikes, and your maximum loss is limited to the wing width minus the net credit.
The iron condor is one of the most popular defined-risk strategies for NSE Nifty and Bank Nifty option sellers, especially on weekly expiry. Because the long wings cap risk, SPAN margin is far lower than a naked strangle, making it accessible to retail traders who want steady theta income without unlimited exposure.
Related terms
- Bull Put SpreadA bull put spread sells a higher-strike put and buys a lower-strike put to earn premium with a mildly bullish view.
- Bear Call SpreadA bear call spread sells a lower-strike call and buys a higher-strike call to earn premium with a mildly bearish view.
- Short StrangleA short strangle sells an out-of-the-money call and an out-of-the-money put to earn premium in a quiet market.
- Iron ButterflyAn iron butterfly sells an at-the-money straddle and buys protective wings, for high premium with defined risk.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.