The short strangle's disciplined older sibling. Four legs: sell an OTM call + put (collect premium) and buy further-OTM call + put (protection). Bounded max loss, respectable premium, the workhorse of income traders who value sleep.
Take a short strangle. Add “wings” (protection) on both sides. Now if either side blows through your short strikes, the long strikes cap your loss.
Four legs, one position:
Nifty at ₹25,000. Weekly expiry Tuesday.
Net premium: (75 − 30 + 80 − 35) × 25 = ₹2,250 collected
Max loss (either side breaks): spread width − net premium = 200 − 90 = ₹110 per share = ₹110 × 25 = ₹2,750
Risk/reward: risk ₹2,750 to make ₹2,250. Not glamorous — but bounded.
Payoffs at expiry:
Nifty stays 24,700 – 25,300: all worthless → keep ₹2,250.
Nifty at 25,600: loss = spread width − net premium = ₹2,750 (max loss, capped).
Nifty at 26,500 (huge move): still only lose ₹2,750. Cap held.
Nifty at 24,400: loss = ₹2,750 (max loss on put side).
Nifty at 22,000 (crash): still only ₹2,750 lost.
Net premium = Short call + Short put − Long call − Long put (per share)
Max profit = Net premium × Lot (if underlying between short strikes at expiry)
Max loss = (Spread width − Net premium) × Lot
Where spread width = |Long call strike − Short call strike| (assumes wings are equidistant)
Break-evens: Upper = Short call strike + Net premium Lower = Short put strike − Net premium
| Short strangle | Iron condor | |
|---|---|---|
| Premium | ₹3,875 | ₹2,250 |
| Win rate | ~90% | ~85% |
| Max loss | Unlimited ⚠️ | ₹2,750 (capped) |
| Margin required | Higher | Much lower |
| Sleep quality | Poor | Good |
You collect less premium (~60%) but your worst-day loss goes from “unlimited” to a known ₹2,750. Margin required drops too. Trade-off strongly favors iron condor for most retail traders.
Standard iron condor:
Rule of thumb: target a premium at least 30-35% of the max loss. If premium is only 20% of max loss, the trade isn’t worth it (bad risk/reward).
Only risk 2% of account per iron condor. Account ₹1,00,000, max risk per trade = ₹2,000. So max 1 lot with ₹200 wings, or 2 lots with ₹100 wings. Stay small, live to trade another day.
1. Set-and-forget: Enter the condor. Don’t touch. Let it expire. Take the outcome. Simple, works if you sized right.
2. Active management:
Active management tightens outcomes but requires more attention. Retail traders typically do better with set-and-forget + strict sizing.
Popular retail approach in India:
| Capital | Realistic net income/month |
|---|---|
| ₹50,000 | ₹500-1,500 |
| ₹1,00,000 | ₹1,000-3,000 |
| ₹5,00,000 | ₹5,000-15,000 |
| ₹10,00,000 | ₹10,000-30,000 |
| ₹25,00,000 | ₹25,000-70,000 |
Numbers assume disciplined sizing, no leverage, occasional losing months.
Iron butterfly — same idea but the two short strikes are the SAME (at spot):
Higher premium collected than iron condor (short straddle body), but narrower profit zone (needs Nifty to pin exactly at the strike). Best when you strongly believe in a pin at a specific level.
Broken-wing butterfly — asymmetric wings, often set up for a net CREDIT rather than debit:
The narrow-wing side has bounded loss; the wide-wing side has larger max loss but sets up for a credit. Directional bet where you WANT the market to move away from the wide-wing side.
Nifty at 25,000. Mildly bullish; don’t expect it to drop much but happy to profit if it holds.
Net: (−80 + 80 − 15) × 25 = −₹375 debit (small, or often zero/credit at different strikes)
Max profit: at 24,500 = 200 − 15 (structural) × 25 = ₹4,625 Loss zone: below 24,000 (max ~₹5,000) Free zone: above 24,700 (no loss beyond debit)
You’ve built a directional bet with an asymmetric payoff that costs almost nothing.
Broken-wing butterflies are advanced but powerful for expressing high-confidence directional views with limited cost.
Payoff calculator → “Iron condor” preset. Notice the four “knees” in the payoff — bounded losses instead of a strangle’s endless drop.