The Iron Condor is a neutral options strategy that profits when the underlying (typically NIFTY 50 or BANK NIFTY) stays within a defined range until expiry. It involves selling an OTM call spread and an OTM put spread simultaneously โ collecting premium from both sides. The maximum profit is the total premium collected. The maximum loss is capped (unlike a naked straddle).
Iron Condor Structure
| Leg | Action | Strike | Purpose |
|---|---|---|---|
| Short Call | Sell | OTM โ e.g., NIFTY + 200 points | Collect call premium |
| Long Call | Buy | Further OTM โ e.g., NIFTY + 400 points | Cap maximum loss on upside |
| Short Put | Sell | OTM โ e.g., NIFTY โ 200 points | Collect put premium |
| Long Put | Buy | Further OTM โ e.g., NIFTY โ 400 points | Cap maximum loss on downside |
P&L Profile
Ideal Market Conditions for Iron Condor on NIFTY
- India VIX above 16 โ higher IV means more premium collected
- No major events in the expiry week โ avoid RBI meetings, budget days, election results
- NIFTY in a consolidation phase โ not in a strong trend (check ADX below 20)
- Weekly expiry cycle โ sell on Monday/Tuesday, expire Thursday
Strike Selection Rules
Strike Selection for NIFTY Weekly Iron Condor:
Short strikes: Delta of 0.15โ0.20 (approximately 1.5โ2 standard deviations OTM)
Long strikes: 100โ200 points further OTM from short strikes
Example (NIFTY at 23,500):
โ Sell 23,800 CE (roughly +300 OTM) and Buy 24,000 CE
โ Sell 23,200 PE (roughly โ300 OTM) and Buy 23,000 PE
Target: Collect โน80โโน120 net premium per condor (50 units per lot)
Short strikes: Delta of 0.15โ0.20 (approximately 1.5โ2 standard deviations OTM)
Long strikes: 100โ200 points further OTM from short strikes
Example (NIFTY at 23,500):
โ Sell 23,800 CE (roughly +300 OTM) and Buy 24,000 CE
โ Sell 23,200 PE (roughly โ300 OTM) and Buy 23,000 PE
Target: Collect โน80โโน120 net premium per condor (50 units per lot)
Risk Management
Critical rules for Iron Condor safety:
1. Close the threatened side if NIFTY moves within 50 points of a short strike
2. Never let either short strike go deep ITM โ take the loss and close
3. Set a stop loss at 2ร the premium collected (if you collected โน100, exit at โน200 total loss)
4. Never sell condors the week before RBI policy, budget, or election results
1. Close the threatened side if NIFTY moves within 50 points of a short strike
2. Never let either short strike go deep ITM โ take the loss and close
3. Set a stop loss at 2ร the premium collected (if you collected โน100, exit at โน200 total loss)
4. Never sell condors the week before RBI policy, budget, or election results
Backtesting Iron Condors on Momentum IQ
Use the F&O backtesting module (Pro/Quant plan) with these parameters:
- Strategy: Short Strangle / Iron Condor
- Entry: Monday of each weekly expiry
- Exit: Thursday close or stop loss triggered
- Test period: Include 2020 (VIX 85) and 2022 correction to stress-test
- Filter: Only enter when India VIX > 14
