Module 6 Option Strategies

Chapter 14

Iron Condor


14.1 – New margin framework

These are fascinating times we are living in, especially if you are an options trader in India πŸ™‚

Starting 1st June 2020, NSE’s new margin framework is live, which essentially brings down the margin requirement for the hedged position.

What is a hedged position you may ask? Well, we have discussed this several times in this module, but for the sake of completeness of this chapter, we will quickly discuss this again.

Assume you are riding a bike at 75Kms per hour, without wearing a helmet. Suddenly you come across a pothole, you slam the breaks to cut speed, but it’s too late, you crash and fall.Β  What is the probability of injuring your head? Quite high given the fact that you are not wearing a helmet.

Now imagine the same situation, but instead of being carefree, you decide to wear a helmet. Given the crash, what is the probability of injuring your head? Low probability, right? Because the helmet protects you from an injury.

The helmet acts as a hedge against a potential disaster.

In the same way, a naked futures or options position in the market is like riding a bike without wearing a helmet. The risk of market-moving against your position, causing capital erosion is high.

However, if you hedge your position, then the risk of losing capital reduces drastically.

Now, think about this – if your capital loss is minimal, then it implies that the risk for your broker is also minimum right? Now, if the risk for the broker reduces, it also means the risk for the exchange reduces.

So what does this mean to you as a trader?

Remember, the critical margin dynamics – the lesser the risk you carry, the lower the margin requirement. Higher the risk, higher the margin requirement.

Therefore, this means whenever you initiate a hedged strategy, the margins blocked by your broker is less compared to the margin required for a naked position.

In essence, NSE has proposed the same in the new margin framework.

You can check this presentation by NSE for more details.Β 

The presentation is quite technical; you do not have to crack your head to understand this unless you really want to.

From a trader’s point of view, there are three key takeaways from the new margin policy; all the three highlighted in 1 slide of this presentation, here is a snapshot –

Starting from the top –

  • Portfolio 1 – Margins have increased for naked unhedged positions to 18.5% from the current 16.7%.
  • Portfolio 2 – 70% reduction in margins for market-neutral positions
  • Portfolio 3 – 80% reduction in margins for spread positions

What does this mean to you as an options trader?

Well, some of the useful strategies, which looked great on paper but were prohibitive to implement due to excessive margin requirement, now look enticing.

A trick question for you here – why do you think the margin reduction is higher for spread position compared to a neutral market position?.

Do think about it and post your response in the comment section.

So given this, I want to discuss one more options strategy in this module, I had not discussed it earlier since the margin requirement was very high, but now, it’s no longer the case.

14.2 – Iron Condor

The iron condor is a four-legged option setup. The iron condor is an improvisation over the short strangle.

Have a look at this –

I’ve taken this snapshot from Sensibull’s Strategy Builder. As you can see, Nifty is at 9972.9, and I’m trying to set up a short strangle by shorting OTM calls and puts –

  • 9800 Put at 165.25
  • 10100 Call at 145.25

Since both the options are written/sold, I get to collect a total premium of 164.25+145.25 = 309.5.

For those of you not familiar with the strangles, I’d suggest you read through this chapter.

The pay off for this short strangle set up is as follows –

I love this strategy because it lets me retain the premium as long as Nifty stays within a range, which most often it does. Besides, this is also a great way to trade volatility. Whenever you think the volatility has shot up (usually it does around big market events) and therefore the option premiums, then you’d want to be an options seller and pocket the high premiums. Short strangles is perfect for such trades.

In a short strangle, since you sell/write options, it results in a net premium credit. In this case, you get a premium of Rs.23,288/-.

The only issue with short strangles is the exposed ends. The strategy bleeds if the underlying asset moves in either direction.

For example, this particular short strangle has a range of safety between 9490 and 10411.

I agree this is a wide enough range, but markets have taught that it can make crazy moves within a short period. Most recent being the COVID-19 crash in early 2020 followed by quick recovery from the lows.

If you are caught with such a rapid market move, the potential loss can be colossal and can wipe your account clean. Now, because the possible loss is unlimited, this means the risk to you and the broker is quite high. Eventually, this translates to higher margins as well –

The margin to set up a short strangle is nearly 1.45L, which is quite prohibitive for many traders.

However, this does not mean that you have to say goodbye to a short strangle. You can improvise on the short strangle and set up an iron condor, which in my opinion is a far better strategy.

An iron condor improvises a short strangle by plugging in the open ends. Think of an iron condor in 3 parts –

  • Part 1 – Set up a short strangle by selling a slightly OTM Call and Put option
  • Part 2 – Buy a further OTM Call to protect the short call against a massive market rally
  • Part 3 – Buy a further OTM Put to protect the short Put against a massive market decline

This makes an iron condor a four-leg option strategy. Let us see how this looks –

  • Part 1 – Sell 9800 PE at 165.25 and sell a 10100CE at 145.25, collect a premium of 310.5 or Rs.23,288/-.
  • Part 2 – Buy 10300 CE at 77 to protect the short 10100 CE
  • Part 3 – Buy 9600 PE at 105.05 to protect the short 9800 PE

The trade setup looks like this –

If you think about this, the short option premium collected finances the long option positions.

Since you buy two options to protect against two short options, the profit potential reduces to a certain extent –

As you can see, the max profit is now Rs.9,634/-, but the reduced profit comes with reduced stress πŸ™‚

The max loss is no longer unlimited but restricted to Rs.5,366, which in my opinion is awesome because I now have visibility on risk and it is not open-ended.

The profit is restricted, as long as Nifty stays within a range, in this case between 9672 and 10228. Notice, the range has shrunk compared to the short strangle.

The payoff of an iron condor looks like this –

Now, what do you think about the risk? The risk here is completely defined. You have clear visibility on the worst-case scenario. So what does it mean to you as a trader, and what does it mean to the broker?

You guessed it right since the risk is defined, the margins are lesser.

This is where the new margin framework of NSE comes into play. An iron condor requires you to pay an upfront margin of only Rs.44,303/-, contrast this with the short strangle’s margin requirement of Rs.1.45L.

Besides, before the new margin framework, executing an iron condor was not very viable for a retail trader. For these strikes and premiums, the margin requirement for an Iron Condor was roughly in the range of 2 to 2.2L.

14.3 – Max P&LΒ 

There are a few important things you need to remember while executing an iron condor –

  1. The PE and CE that you buy should have even strike distribution from the sold strike. For example, here we have sold 9800 PE and 10,100 CE. We have protected the sold strikes by going long on 9600 PE and 10,300 CE. The difference between 9800 PE and 9600 PE is 200 and 10,100 CE and 10,300 CE is 200. The spread should be even. I cannot protect 9800 PE by buying 9700 PE (difference of 100) and then protect 10,100 CE with 10,300 CE (difference of 200).
  2. The Max loss occurs when the market moves either above long CE i.e. 10,300 CE or moves below long PE i.e. 9,600PE
  3. Spread = 200 i.e. the difference between the sold strike and its protective strike.
  4. Max Profit = Net premium received. In this case, it is 128.45 (9634/75)
  5. Max loss = Spread – Net premium received. In this case, it is 200 – 128.45 = 71.54.

I’d suggest you look at the excel sheet at the end of this chapter for detail working of this. Please note, I have updated the excel sheet 2 days after I wrote this chapter, hence the values are different.

14.4 – ROI and Logistics

By setting up a short strangle, you receive a premium of Rs.23,288/- and for the iron condor, the premium receivable is Rs.9,643/-. Agreed, in terms of absolute Rupees, the iron condor offers a far lesser premium inflow. But when you measure this against the margin requirement, the ROI flips in favour of the Iron condor.

Short strangle requires a margin of Rs.1,45,090/-. Therefore the ROI is –



The margin requirement for iron condor is Rs.44,303/-. Therefore the ROI is –


= 21%

As a trader, you need to think in terms of ROI and not absolute numbers, and the margin benefit makes a significant difference here.

The sequence of trade execution makes a big difference here. If you are considering an iron condor, then here is the trade sequence –

  • Buy the far OTM call option
  • Sell the OTM Call option
  • Buy the far OTM PUT
  • Sell the OTM PUT option

The point here is that you need to have a long position first before initiating the short position.

Why? Because short option position is a margin guzzler, so when you have a long position, the system knows the risk is contained and hence will ask you for lesser margins for the short position.

Please note, I’ve only considered the margin blocked for the ROI calculation, I’ve not considered the money paid to buy the options and the money received when you write an option.

So traders, as a next step, I’d urge you to select different strikes for the long positions and see what happens to the premium receivable, breakeven points, and the max loss.

Do post your observation and queries below.

Key takeaways from this chapter

  • NSE’s new margin framework reduces the margin requirement for market neutral and hedged strategies
  • While the short strangle is an excellent strategy, it has open ends with potentially unlimited losses
  • The iron condor is an improvisation over the short strangle
  • In an iron condor, the long OTM calls and puts protect the open ends of theΒ  short strangle
  • Margin required for an iron condor is far lesser compared to a short strangle

Download Iron Condor Excel Sheet


  1. Mahesh Kumar Shastry says:

    If the trade is going in the direction desired, should te the whole trade be just left to expire ..till June end , meaning just let them expire..all 4 legs ?? Kindly clarify

    • Karthik Rangappa says:

      Yes, that’s when you’ll get to squeeze out the entire premium. Btw, there is no desired direction here πŸ™‚

  2. manish says:

    hi karhik.iron condor is better over short strangle.would u plz highlight on iron butterfly.

  3. Sujeet Raj says:

    Thank you for Iron Condors.. It was today only that I was looking forward to studying Iron Condors. What a coincidence πŸ˜€
    Regarding the trick question, the Put Call Parity Arbitrage, even though has a synthetic long and short futures position, there is still 1 short put and 1 futures short, both of which will require big margins when done naked. Due to the volatility in market and M2M everyday, higher margin is required for these 2 positions than just 1 short position on calls in the Bull Call Spread.
    Am I correct?

    • Karthik Rangappa says:

      That also. The main thing is that the delta-neutral strategy may not remain delta neutral if the market start to move in a particular direction. These positions need constant adjusting to make it remain delta-neutral. The example highlighted here may not be the best for what I just said, but something thing like a straddle and strangle is.

  4. Sujeet Raj says:

    And the payoff of market neutral is actually zero (not considering transaction costs) when held till expiry.. Also more scope to exit out of 1 leg of a trade. If getting out of the bought call prematurely, then short put and short futures both have risk to the downside and it won’t be a hedged position anymore

    • Karthik Rangappa says:

      Pay off is not zero. I mean why would you want to initiate a strategy if the pay off is zero right? The pay off is the difference in spread. The risk of exiting one leg remains with other spread as well.

  5. Sujeet Raj says:

    Not sure why this did not come as a reply to previous comment

  6. Sujeet Raj says:

    @ Karthick,
    will the new margin framework be applicable to stock FnO? and if yes. How will it behave in the last week of expiry for a perfectly hedged strategy since the margin requirements will jump of for naked positions due to delivery

  7. manish says:

    hi sensibull/zerodha is capital required and margin required are two different amount or capital required is inclusive of margin money.

  8. Dinesh says:

    How to execute all the 4 legs at the same time in zerodha kite…when can we expect the basket orders in zerodha?

  9. Mahesh says:

    Hi Karthik,

    Appreciate the lucid explanation here.
    Anything similar to this in Futures trading too?
    Thanks !

  10. Saravana Ub says:

    I read all the chapters in options and option strategies in varsity. And found the idea of selling option outside 1SD very good. But then the margin requirements made it not feasible. As soon as the new margin policy is implemented I sold options 1SD away on June 3 and hedged them sir. Thank you for teaching us all these.

  11. Nandhakumar says:

    Market neutral strategy has a future position embedded in it. Since the MTM in futures is cash settled it has a higher margin and more over the margin for naked futures is itself higher than naked short options.

  12. Arun Sivaraj says:

    I am unable to place far OTM options. If I embale TOTP, will I allowed to do so?

  13. Amit says:

    But now is ZERODHA allowing to trade in far OTM options like 1000 points difference with all expiry dates ? Because for most of the retail traders, this IRON CONDOR strategy works best with far OTM options ONLY.
    At least, after reducing new margin requirements, ZERODHA should allow to trade in far OTM options.

  14. manish says:

    hello karthik.yesterday i initiated a virtual trade.iron condor set up made.short nifty PE strike9950 @151.95, short CE [email protected],,
    buy CE [email protected] buy PE [email protected] 72.IV when trade initiated was the trade was on negative side as IV was 40%.what should be my stand now? should i wait till expiry or square off the position .if i wait till expiry if i suffer loss would it be capped as per strategy or more than that can happen.

    • Karthik Rangappa says:

      Depends on your view on volatility. If you expect it to increase more, then the losses will mount. However, the max loss is already defined.

  15. Mehul says:

    As per margin calculator of zeordha
    It require 90000 for the follwing trade
    Nifty Buy 75
    Nifty put 10000 buy 75
    Nifty Call 10300 short 150

    But when actually trading margin require is more than 180000

    Please help for this

  16. Amit says:

    Can u pls explain how the loss of rs 5366 is calculated from this trade.??

    • Karthik Rangappa says:

      Ah, maybe I should have put up the excel calculation, but I just took the values straight from Sebsibull πŸ™‚

  17. Prashanth Kulkarni says:

    Could you please share xls sheet for reference (similar to short strangle)?

  18. Krishna Chaitanya says:

    Hi Karthik,
    Thanks for Yours new post.I have Read all Yours Post and Reading still to understand better ☺
    I have a question :using straddle,stangle and Iron Condor why are we calculating Low and High break even points using premium instead we can use 1SD/2SD ? is is not that much useful?

    • Karthik Rangappa says:

      The strategy is independent of SD, it is dependent on the strikes. SD is an arbitration based on prices.

  19. K VIJAYA BHASKAR says:

    In example premium received may be higher than premium paid. In dynamic Market premiums are continuously changing. In any set of time is premium received is higher than premium paid? If we executed two longs first, then later two shorts. The planned payoff calculation may change beyond our view. I think if we execute four orders at a time with high speed, then our calculations and view may be protected. Please let me know am I right.

    • Karthik Rangappa says:

      The point in that you are shorting strikes closer to ATM and going long on strikes which are further away from the ones you’ve sold. Hence the premium for short will always be higher than the longs, hence this will result in a net credit.

  20. Naveen says:

    Hi Karthik,

    Can u please put up the detail excel sheet for iron condor, it helps us understand the max loss calculation as well.
    Zerodha is doing a wonderful job by educating us with varsity. cheers

  21. Sumukh Bagaitkar says:

    Hi Karthik,

    in sensibull it shows , capital required and margin required are two different amounts, can you elaborate more on this? ..if possible with example

  22. Sajeev says:

    Hi Sir,
    Thanks for the knowledge sharing.. How the iron condors will kept delta if the spot price moves away from the range?

  23. Arvind Verma says:

    Hi Karthik,
    Thanks for sharing it but please share it’s excel sheet calculation as you shared for other strategies.
    Here we receive net premium β‚Ή128 so the upper breakeven point is 10228 and maximum loss would be at 10300 and it would be (10300-10228=72).
    Lower breakeven point is 9672 and maximum loss would be at 9600 (9672-9600=72). Right?

    • Karthik Rangappa says:

      Arvind, I just took the values from Sensibull πŸ™‚

      I’ll update this chapter with an excel template soon.

  24. Krishna Chaitanya says:

    Hello Karthik
    Good Morning!
    Is their any link on exit strategy or Settlement for options on or before expiry date explained?

    • Karthik Rangappa says:

      Not really, these are good to be held till expiry to juice out the entire premium. However, you can exit before expiry based on the P&L.

  25. Raju shinde says:

    Pls provide excel sheet

  26. Nikhil N says:

    Margin reduction is higher for spreads since you are still paying some premium to put on the position. In an ideal world if you are buying a call spread or put spread as a package you dont need to post any margin whatsoever

  27. Srikant Ramasubban says:

    Can we have a customised selection of constructing an iron condor as also other multi legged option strategies in the Kite app?
    This feature is available with Dow jones/ Nasdaq brokerages.
    Also, a customised margin calculator app to support kite is to be developed

  28. Abhilash says:

    In neutral strategies risk is limited, so any stop loss order is required for each leg.?

  29. Abhilash says:

    In iron condor strategy if stock is between the range on expiry, then will get the all the premium collected right?

  30. Abhilash says:

    Please explain iron butterfly strategy, is it better than iron condor?

  31. Abhilash says:

    when will be the best time( means no. of days before expiry) to enter trade for weekly and monthly options with neutral strategies?

  32. DHAVAL says:

    sir, how i place the order for margin benefit. sell OTM banknifty put and call.

  33. kuldeep sherawat says:

    plz add and explain iron condor strategy adjustment for more learn and knowledge


    The margin reduction is indeed a boon for retail investor and broker who can attract more investors. I would appreciate Zerodha provides a Basket / Strategy builder (currently available in Sensibull for paid members) to Zerodha users.


  35. Swetha Urs says:

    Hi Karthik,

    Firstly thank you very much for all the knowledge you are sharing. It has really helped many retail traders like me to increase their understanding in the markets and concepts crisp clearly.

    My question- Why is zerodha not letting trade far OTM’s??
    Though the margin requirement is less for all the hedged positions, the credit we receive is also less.
    I see the strikes above 10% from spot are not allowed but it would be more beneficial if the 10% limit is increased.

    Thank you

  36. Md Faizan Ahmad says:

    Hello Sir, If I have total 60k in my trading account and I want to do iron Condor for 1 lot of Nifty in monthly expiry. Can I do or not?or add some money for margin requirement… per my opinion my risk and reward is defined so 60 k is enough for me,,, please regard me am I right or wrong

  37. Swetha Urs Naresh says:

    Karthik, I tried placing far OTM order for weekly expiry couple of times but I was not allowed to buy or sell.

    • Karthik Rangappa says:

      All strikes were allowed for weekly today. I’m not sure why it was rejected. Can you please touch base with our support desk for this? Thanks.

  38. Ganesh Parameswaran says:

    Karthik Rangappa – The Grand Master has explained this in such a lucid manner!! I owe it to you a lot on learning through Zerodha Varsity on the basics of Options and Options Strategies. Now, with the revised margin rules, Irom Condor comes in as a special learning gift. Thank you for all the hard work and passion you invest!
    Please can yo explain in your inimitable style;
    1. How to achieve a risk:reward of atleast 1:2 while designing the Iron Condor?
    2. How beneficial (again from a risk:reward perspective) is the Iron Butterfly to Iron Condor?
    3. Lastly, Iron Condor / Iron Butterfly calendar spread (sell Strangle / Straddle in monthly and buy protection in weekly) – is that really bulletproof safe?

    • Karthik Rangappa says:

      Thanks for all the kind words, it very encouraging πŸ™‚

      1) Very tough, but look selling strikes which are close to ATM and protect this with strikes slightly away from ATM
      2) They are similar, but RRR of 1:2 is possible with the butterfly
      3) Nope, they all need to have similar expires.

  39. Sujeet Raj says:

    Sir, does that mean, when implementing the strategy from Kite, we will need both the margin and the money to buy the options?
    Say, 44k margin to sell, and 20k option premium for the buy legs, then total capital required for implementing the strategy is 64k?

    Also, you said: “The difference between 9800 PE and 9600 PE is 200 and 10,100 CE and 10,300 CE is 200. The spread should be even”.
    Why should the spread be even? If it is not even, I am guessing the max loss on one side will not be equal to the max loss to the other side. So we will have 2 types of max losses.

    • Karthik Rangappa says:

      Thats right, 44K is to sell, you need to add the money to buy as well. True, when the spread is not even, the loss will be uneven, which is still ok if you have a directional bias. But it kind of defeats the purpose because you are better of with a bull call spread or a bear put spread for directional bets.

  40. Tarun says:

    How to place all leg order simultaneously for Iron Condor to get the margin benefit, When i am placing order separately i am not getting benefit of low margin

  41. VIJAY NARVEKAR says:

    Please post how to do adjustment if trade went against views.

    • Karthik Rangappa says:

      Vijay, the iron condor is completely adjusted, that’s why we have 4 legs. All the outcomes are known before you initiate the trade.

  42. Ashrant Pani says:

    Sir, I am new to option selling. I am confused about the margin requirement logistics of the trade.
    1) buy far OTM call -> we will need money
    2) sell OTM call -> margin blocked (around 30k), but we will also receive premium
    3) buy far OTM put > we will need more money? or the payment can be done from the received premiums on 2nd trade?
    4) sell OTM put -> more margin blocked (to around 44k as per the example), but we will also receive premium

    I am guessing that, since premiums are received into account at end of day (I don’t know whether it is T+1 or T+2 for options, so considering same day – end of day due to M2M), so at the time of the trade setup, we will need full margin + option buying amount.
    say we started from 1 lakh account
    after trade executed: margin (44k) + 21k (option buying premium) = 65k
    thus 35k remaining in account.

    but after M2M, we will receive the option premiums of say 30k, since it is net credit spread.

    Will it increase our account balance by 30k? 35+30 = 65k,
    or the entire 65k (margin 44k and 21k cost of option buying) is blocked till end of trade until we exit from the trade or till expiry (and as per whatever P/L)

    • Karthik Rangappa says:

      Yes, when you sell you receive the margins. Hence I mentioned that the sell option kind of finances your buy position. Overall basis, you’ll need margin for sell, a part of you buy is covered by the premium received.

      The benefit of receiving the premium is instant, you need not have to wait. However, if you want to withdraw, you will have to wait for T+1. Also, there is no M2M in options.

  43. Ramakrishna says:

    How to execute 4 entries simultaneously

    • Karthik Rangappa says:

      Ah, sorry, by simultaneously I mean one after the other in quick succession. However, simultaneously should be possible soon on Kite.

  44. Ram Sahu says:

    Sir i’m also new in options trading n i’m trying to understand please correct me if im wrong.
    At any ATM we can
    1. Buy put of 400 points down.
    2. Sell the put of 200 points down.
    3. Sell the call of 100 points up.
    4. Buy the call of 300 points up.
    Can it be applicable all the time. At any ATM.

    • Karthik Rangappa says:

      Ram, this will result in a non-symetrical payoff, which may be tough to manage. Can you please put these values on Sensibull strategy builder and visualize the payoff?

  45. Ramesh says:

    From where I can apply options strategies in Zerodha? Do I need to subscribe Sensibull for option workout option stratagies?
    In Iron condor what if we sell call and put after 3:15 pm and buy the call and put for intraday. Because buy rates reduced for next day.

    • Karthik Rangappa says:

      No not necessary. You can execute these trades directly. I’m not sure if I understand your logic for intraday. Maybe you can give a bit more context. Thanks.

  46. SUNIL says:

    In iron condor strategy if suppose market goes in up direction so can i square off 2 legs that is sell call and buy put to get the benefit of upward direction

  47. Ritesh Jha says:

    Hi Karthik,

    Is there any change in the margin requirement of currency futures as per the new circular. I saw one slide in the presentation shared which talks about currency derivatives, and there it is mentioned ELM is proposed ‘to be halved’.

  48. manish says:

    hi a beginner in options i need to understand if i execute iron condor strategy and the strategy is profitable before expiry and there is ample time to expiry can i square off the positions and book profit before expiry.if yes how to square off the position as 4 legs in strategy 1) short call 2)short put 3)long call 4)long put.what should be the SEQUENCE to square off and EXIT.

    • Karthik Rangappa says:

      Yes, Manish you can exit before the expiry. No need to wait to expiry. I’d suggest you exit by exiting the short call, long call, short put, long put sequence.

  49. manish says:

    hi karthik. u gave the sequence of exiting before expiry as 1) short call 2) long call 3)short put 4) long put.if i m not mistaken during exiting before expiry for each leg i have to cover the position at current spot price.for eg.1) to cover short put i should buy put at current price 2)to cover long call i should sell call at current price ans so on for other two legs.

    • Karthik Rangappa says:

      No need Manish, the assumption here is that you’d be exiting all these positions one after the other in quick succession. So there is no real need to cover and increase costs.

  50. Rishabh Chandra says:

    Hi Karthik – another great learning module. Thanks a ton for the hard work in explaining this as lucidly as ever to create hedged strategies.

    At an overall level and perhaps this question sits in the option strategies module – are you planning to create more content on how to adjust option strategies as one progresses through the expiry? Perhaps on defending the premium when you are a writer or keeping options gamma and/ or delta-neutral ?

    • Karthik Rangappa says:

      That’s an interesting thought, Rishabh. For something like an iron condor (or butterfly, which I’ve not explained), there is no real need to adjust as these are hedged positions. What needs adjustment is a delta neutral position such as a short strangle and straddle. Need to spend some thought on this and maybe I’ll put up something.

  51. ABHILASH KUMAR P V says:

    How filter low volatile or neutral stocks for iron condor strategy?
    Pls give IV range for low volatile stock.

  52. Subhajit Chattopadhyay says:

    Dear Karthik,
    Thanks again for this tutorial. I have one question for iron condor its very important to select the correct OTM and correct slightly more far OTM. Could yo please help me to suggesting which parameter we should consider for choosing that. OI, max pain may be PCR. Will wait for your reply. Thanks again, have learned a lot from your blog. Have a great day.

    • Karthik Rangappa says:

      Subhajit, I’d just go with 1-2 strikes away ATM for the inner legs and another strike away from the inner legs.

  53. Premakumar Kootagal Sanjeevaiah says:

    Respected Sir,

    Long awaited strategy. Thanks a lot sir. I have gone through so many youtube videos and write up on this particular strategy (as it was not available here !!!). But, none of them have explained the underlying concept methodically. Most of the things are a kind of copy and paste. I had requested for this strategy writeup even when I was not knowing ABCD of strategies. After going through the strategies atleast for 3 times, I have now started trading options in a small scale and am able to appriciate every word of this classic write up sir. I am now in a position to understand why you have been emphasising so much about the option greeks. It was a long journey from March 23rd till today, I have covered all the modules as if I have got admission to stock market college. Thanks again for giving such a invaluable stuff free of cost.

    Warm Regards.

    • Karthik Rangappa says:

      Thanks for the very kind words and I really appreciate your patience to read through all of it. I hope you continue to learn and I hope you remain profitable! Good luck.

  54. sunil says:

    karthik sir i have seen one iron condor strategy in stargtegy wizard where there is no break even at expiry and delta is zero then there is no chance of max loss at expiry here is strategy buy put 20400 sell put 20500 sell call 21500 and buy call 21600 when banknifty is at 21592 , is it possible that delta is zero and there is no loss wherever is market go i m very much confused please help

    • Karthik Rangappa says:

      I’m not sure about that, Sunil. In an iron condor risk is contained, but the loss does occur if it moves in either of the directions.

  55. Anil Gupta says:

    Hello Karthik,

    Implied volatility should decline post-execution of an iron condor?

    • Karthik Rangappa says:

      Anil, you’d want both the market and the IV to stay in a range for the best case possibility. Btw, volatility is kind of hedged in an iron condor.

  56. Manpreet Singh says:

    Hello Sir… I am a beginner in options trading . And i have 2 questions
    1 QUESTION. Suppose i implement Iron condor strategy on nifty . (Spot price – 9800) . Short CE of 10,000 (OTM) and also short PE of 9600 (OTM) and again protects them by buying ( Otm PE ) AND ( OTM CE ). NOW SUPPOSE CE OF 10000 Have premium of 40 rs and premium given by Pe of 9600 is 60 rs. CAN I MAKE MONEY BY IMPLEMENTING THIS STRATEGY FOR ONE DAY . Suppose i implement this strategy on Monday at 9.20 AM and exit at 2.30 PM. Will i make money ?
    2 .QUESTION Can i use this strategy on stocks also ? …….Please reply…….

    • Karthik Rangappa says:

      1) I doubt it since these multi-leg strategies are best held to expiry.
      2) Yes, you can do this on stocks, index or even CDS.

  57. Anil Gupta says:

    Thanks, Karthik!!

    To get the best possible risk/reward, what if the range of stock/index is their support and resistance.
    a.) My range is wide. so my losses will be minimized.
    b.) Deep OTM options so the probability to get convert into ITM is far less. (low delta).

  58. Manish says:

    hi karthik.i have few queries.
    1)how probability of profit(POP) calculated?
    2)when strategy is created what is minimum range of POP that should be looked for?
    3)How is POP related to maximum profit/maximum loss?

    • Karthik Rangappa says:

      1) One way to measure POP is to consider the delta of an individual strike or overall position. If the delta is 0.45, then the POP is 45%
      2) Higher the better, but this may not always be the right way to set up a trade.
      3) POP is one aspect, it has no relevance to INR value of P&L

  59. Sriram Viswanathan says:

    Thanks for sharing this excel calculator. It’s a boon for people like me. Can the same be used across Stock Options and Index? Do we need to make some changes in it?

    • Karthik Rangappa says:

      Yes, you can use it on stocks as well. I think the template should work. Try replacing the premium values, please.

  60. PRABIR says:

    Hi Karthik
    Thanks for sharing good knowledges. Just wanted to ask you;
    i) the options sold are to be closed to ATMs, shall we have to see the position delta or vega? Or just go for shorting the just OTM options. The spread of 200 between the sold & bought options is ok.
    ii) when we should we exit in case a trend is formed and seems to violate the boundaries(BEP range), or just wait for the expiry for the capped loss.

    • Karthik Rangappa says:

      1) Yes, stick to OTMs, it accounts for all greeks.
      2) This depends on what you expect from the market. If the premiums have moved in your favour and you are profitable, then you can exit the position anytime you wish. No need to wait till expiry.

  61. Rohit Gadi says:

    Hello sir,

    In one of your response about selecting OTM and slightly far OTM strike, you wrote “Subhajit, I’d just go with 1-2 strikes away ATM for the inner legs and another strike away from the inner legs.”

    Could you put this in an example by giving strikes for all 4 positions of iron condor and clarifying which part is called inner leg in your quoted response above?

    • Karthik Rangappa says:

      The inner legs are the ones which you sell…i.e. both the CE and PE. The outlets are the 2 long positions. The example is in the chapter itself, Rohit πŸ™‚

  62. Sriram Viswanathan says:

    thanks Karthik. The excel calculator is awesome. Great work in helping out.

  63. Yuvraj says:

    Hi Sir,

    I see Nifty max pain is 10000 for Jun month. Under which scenario it will break this support in this month? You indicated about black swan events. As per your experience what was the trigger caused max pain value?

    • Karthik Rangappa says:

      That support can be taken away by day to day movement itself, we don’t really need a black swan for this.

  64. Yuvraj says:

    I mean under which all scenario market cross the max pain value?

  65. Rohit Gadi says:

    Thank you for your response, sir. I did go through the example. I was confused about relating the legs part with strikes☺️

  66. vivek says:

    Hi Karthik,
    1. In Iron Condor, we buy OTM put and call options for restricting loss on both sides.

    2. If I construct Short strangle and place 2 GTT stop loss orders on each side of strangle leg, i should able to save on buying premium cost . My profits will be same – premium received from selling option.
    If market moves to one side , stop loss will triger for that leg , protecting my position.
    Only my margin requirement will be higher.

    Is this understanding correct?

  67. Rohit Gadi says:

    Talking about happy learning, i do have one more thing to learn, sir.

    In the entire module, whenever you discussed a strategy, you came up with precise strikes(ATM or OTM or ITM) to enter the market for multi legged ones.

    Did you decide on these by trial and error method or are these strikes universal in nature and professional traders use the combination of these strikes ONLY be it condor, bull call spread etc?
    Please enlighten.

    • Karthik Rangappa says:

      I’ve explained the thought process in the chapters itself, Rohit. If you want to stick to safety, I’d suggest you look at ATM or slightly ITM option.

  68. TP says:

    Hi Kartik,
    How to rectify the iron condor if the NET spread is negative after entering all the legs?
    How to execute the strategy correctly to ensure there is always a positive credit spread after entering all legs.

    • Karthik Rangappa says:

      It cannot go -ve as you are selling strikes which are always at a higher premium compared to what you are writing.

  69. Rohit Gadi says:

    Thank you, sir.

    One last query as did not want to wear you down with a prolonged one at once.

    Two options were described in theory module which were european/american. When i look into zerodha kite, it shows call and put as CE and PE which is european system. That means it can be squared off on the expiry day only. The strategies module says we can square off any day before expiry if we meet our profit targets. Please clarify?

    • Karthik Rangappa says:

      Rohit,CE or PE implies that you can exercise the option on the day of the expiry only. However, you can buy-sell the option by trading the premium. Trading the option premium and exercising the option are two different things.

  70. Balu says:

    What does held till expiry mean?

    If I set up an iron Condor today, should I just wait out till jul 30th Thursday closing bell?

    Will the system square me off ?

    • Karthik Rangappa says:

      You can decide to hold till expiry or you can decide to square off before the expiry. No issues with that.

  71. naresh says:

    i bought nifty call option strike price @11000. Before expiry if nifty goes to 11100, and i square off my postion ,then will i get profit of Rs 100 on my call option. ?

  72. Balu says:

    sir, i need little more clarity since i am setting this up first time

    for eg: If i sell a nifty 11200 CE for a premium of 20 rupees. ie value = 20*75 = 1500 rupees

    and the nifty closes on 10800 on jul 30th 3.30 pm

    Do i get to keep the 1500 rupees if i do no nothing on the 30th ?

    Or do i have to manually buy back the 11200 CE at market price @ 3.29 pm (i.e square off my sell transaction with a buy transaction to complete the trade)

    • Karthik Rangappa says:

      That’s right if Nifty closes below 10800, then the 11200 CE would expire worthlessly, hence you get to retain the entire premium i.e 1500/-. However, it is always better to close the trade before expiry to avoid paying STT for ITM options.

  73. suresh says:

    iron Condor
    if market close at 9000 or 11000
    max loss??

  74. k suresh says:

    iron Condor
    if market close at 9000 or 11000
    max loss??
    This makes an iron condor a four-leg option strategy. Let us see how this looks –

    Part 1 – Sell 9800 PE at 165.25 and sell a 10100CE at 145.25, collect a premium of 310.5 or Rs.23,288/-.
    Part 2 – Buy 10300 CE at 77 to protect the short 10100 CE
    Part 3 – Buy 9600 PE at 105.05 to protect the short 9800 PE

    iron Condor
    if market close at 9000 or 11000
    max loss??

  75. Gurudarshan says:

    Hi Sir,

    Butterfly startegy was listed at the start of the module ,but could not see any explanation, are you planning to add soon , also saw that iron condor was recently added, the old pdf that i downloaded did not have even iron condor, any specific reason not to go in deep discussion with Iron condor and butterflies, please do reply


    • Karthik Rangappa says:

      Its just that the margins were prohibitive for executing these 4 leg strategies, but with the new framework this is now easily possible. Hence added it now.

  76. Gurudarshan says:


    Just a follow up on my previous question, i see 2 other strategies which you said will be discussed at the start of the modiule, Strips and straps, please do add them when ever you find time, I would like to thank you for this education , I have learnt many things through varsity

  77. Shailesh Godse says:

    How my P&L will look like if I exit iron contour before expiry? What I will get and what will be the loss?

  78. Rohit Gadi says:

    Thank you for your response sir.

    I am a swing trader in index futures and trying to learn options. I have another mundane query, if i am trading premium what is the process of squaring it off on kite? Alternatively, if i am supposed to exercise an option at the time of expiry, how does this process differs at the time of execution on kite?

    • Karthik Rangappa says:

      Goto the positions tab, click on exit position and you are done. Exercise an option is simple, you let your position stay in the system without squaring off. If you do so, its deemed exercised.

  79. Ravi says:

    But zerodja not allowing buying OTM options to place iron condors

  80. Rohit Gadi says:


    Thank you so much for responding to all my queries without cringing. Appreciate it, sir.

    I have read both theory and strategy modules now and i loved the cartoons to describe a peculiar situation. They were witty. Also, admire your ability to interwoven your favorite Terentino and Moneyball with options! Learning an art and sharing it with others through teaching is a different ball game together. Zerodha picked up the best guy for this job. Cheers!

  81. S Kumar says:

    How should I consider Implied Volatility while trading options ?
    Like , on what day or what time while trading Nifty options..

    • Karthik Rangappa says:

      Yes, IV is a critical input for options trading. You should look at it. Have highlighted the importance across several chapters.

  82. Shadab Hussain says:

    This chapter is not available in Hindi language

  83. Trupti says:

    I tried executing this strategy but could not do it due to OI restrictions.
    Fortunately, it was the very first trade of buying OTM put which gave this error and then I stopped the entire trade altogether.
    However, this made me wonder what if I would have got the OI error after 2 orders were executed.
    Total mess and instead of safe limited risk trade, it would turn into a nightmare.

    The risk of all four legs *not* being completed seems to be too high. What if only 1,2 or 3 legs get executed and then OI restrictions kick in? I will be stuck with bad trade with high loss probability.

    One way to make this a viable strategy as claimed in the article is to display the OI restriction before placing the trade.
    The Buy/Sell interface can have a button which displays if this strike is within known OI restriction.

  84. Amol says:

    Hello kartik,

    Regarding option, would please explain about how profit & loss are calculated before expiry & on the day of expiry? Also on the day of expiry can we square off the position before 3.30 pm or system will do it automatically on expiry day at 3.30 pm.


    • Karthik Rangappa says:

      Before the expiry, the P&L is simply the difference between the buy and sell price of the option premium. After the expiry, the P&L is dependent on the intrinsic value of the option.

      For CE, the intrinsic value is the positive difference between the spot and strike and for PE, it is the difference between the strike and spot. I’ve have explained this in detail in the previous module.

  85. Rohit Gadi says:

    Hello sir,

    In regards to Trupti’s query above, what are OI restrictions error? Additionally, the link given for strikes allowed for trading is showing the upper range for next week nifty as 11400. However, when i go to kite and search for 11500 ce strike, it is shown for 23 July expiry? Does it mean i will not be able to trade for 11500 ce since the range mentioned is 11400? How does this work. I did see why zerodha have a limited range for OTM strike as 15 percent thing kicks in. Please clarify, sir.

  86. balu says:

    This is my understanding, please correct me if i am wrong

    Options trading works best
    1. if the underlying stays in a range (so that we can deploy a condor and lock-in profits)
    2. we are already in a position and needs hedging or day trading (say we already have 100 qty of stock, but we feel a news may take the stock 5% down. and we dont want to exit the stock – but reap some profit in the meantime πŸ™‚ )

    If we are clear on the direction or the main trend, i guess futures trading gives higher return than options trading.

    • Karthik Rangappa says:

      1) Yes, for iron condor to work, you want the stock/index to stay in a range
      2) Yes, usually ATM PUT works best for such scenario

      Yes, futures is best when you are clear about the direction.

  87. Yuvraj says:

    Thank you for your guidance.

    On day of expiry.. What time one should square off the positions?

    For example on expiry I want to square off 11000CE short and Nifty is trading around 11050 with premium 150. As per analysis Nifty will close around 11080 on expiry day . In such case if I don’t square off 11000 CE what will happen?

    • Karthik Rangappa says:

      It is better to square off the position before 3:20PM on the expiry day and avoid the hassle of getting the contract assigned.

  88. amol says:

    Hello Kartik,

    where do i get OTM strike range for nifty & banknifty for weekly expiry?

  89. Sharan says:

    Hi Karthik,
    I tried to calculate Margin requirements for Iron Condor Strategy on Zerodha’s Margin Calculator, step by step as mentioned in this chapter, on Grasim July 30 CE Options but the margins were still pretty High, i.e., 2,30,000 Rupees. The major component is Exposure Margin – 2,12,000.
    Why is the margin requirement still so high?


  90. Rohit Gadi says:

    Hi sir,

    I was going through your comments about Greeks on above strategy. You said volatility is taken care of in iron condor itself. Something like this for delta also.
    My query is, when i place iron condor which is 4 legs strategy, is this strategy greeks independent? If this term exists. Alternatively, if greeks matter in condor, which ones to look out for and how does it work? I mean what should be the iv and delta etc at the time of entry/exit?

    Thank you for your time.

    • Karthik Rangappa says:

      Iron condor insulates against direction (delta) and volatility (vega), so what you really need to look for is time. However, the same cannot be said about other 2 and 3 leg strategies.

  91. Amol Morde says:

    hello kartik,

    where can see restrictions on certain OTM strikes as far as nifty & bank nifty is considered with respect to weekly expiry.

  92. Amol says:

    Hello kartik,
    i had sold nifty 11200 CE at 17 rupees on 22.7.20(non-expiry day) and if buy the same on 23.07.20 (expiry day) when nifty is hovering below 11200(it was around 11186) at 11.00 am then will i able to keep 17 rupees premium OR should i wait by 3.20 pm?

    • Karthik Rangappa says:

      It depends on what price you are buying back the option. Suppose you buy back at 15, then your profit is 2. Or suppose you buy back at 2, your profit is 15.

  93. Rohit Gadi says:

    Hi sir,

    W.r.t Amol’s query above, don’t we get the maximum profit when we let the Sold options expire worthless.? This is in context to Candor. So, if the underlying remains within the OTM strike range we chose for Candor, we get maximum profit at the time of expiry as we get to keep the entire premium. In Amol case, if we buy back before, it will depend on the premium traded at that moment of time as mentioned in your response? Please clarify if i am on the wrong train of thought?

  94. Shyam Raghavan says:

    hi kartik sir,

    1.The new margin rules brought by sebi is little confusing. When SEBI is talking about no margin for fno from Aug, how will this impact Discount brokers who offer huge leverages to entice retail traders?

    2. With the end of margin facility does that mean we will have to pay 122k (as per zerodha margin calculator) to initiate a position in bank nifty futures for an intraday trade (buy or sell) against a fraction of amount that I’m paying right now for MIS? Or is it only for option sellers?

    3. If this rule is in force from 2021 as sebi says, I’m sure many of the traders with capital base of 1-1.5lacs will have to leave the market as it is impossible to sustain with such a small amt in long run.

    4. Do You think there will be a drastic reduction in trading volumes?

    5.IT looks like SEBI wants to stop retail traders from selling options and they want to drive the traders into buying.

  95. Rammohan says:

    Good Morning. At the very start of this chapter, you have written that “Starting 1st June 2020, NSE’s new margin framework is live, which essentially brings down the margin requirement for the hedged position.” Could you send me the link for whichever NSE Circular this pertains to, please?

  96. Amol says:

    Hello kartik,
    With reference to my query dated on 23.7.20, if I buy back sold option on expiry day on anytime between trading hours (9.15am to 3.20 pm)then would I able to keep entire premium provided that it is below strike price OR will we have to wait till expiry time.

    • Karthik Rangappa says:

      No, you will get to keep the amount which is the difference between the buy and sell price of the premium.

  97. Milan Nagori says:

    Hello Karthik,
    suppose bank nifty spot price is 22600
    and i shorted 23000 call option and 22400 put option
    and suppose I am getting 4000 profit if spot price come down to 22400 or it move to 23000
    So can I square off my position in between or i have to wait till the expiry because I have shorted the position.
    please give my brief because i have never shorted call option.
    And also what amount of margin is prohibited for traders.

  98. Milan Nagori says:

    Ok And Is there any Limit for Margin i.e. like 1.45L above that margin you cannot trade.

  99. Rohit Gadi says:

    Hello sir,

    I am back with another query πŸ˜”

    I was going through the example above and the excel for the payoff attached in iron condor module.

    In both the scenarios, the max profit was greater than the max loss. However, is this the case always or it changes with the selection of strikes?

    I checked the profit and loss ratio by selecting far otm strikes within zerodha oi range and the max loss was greater than max profit?

    Please clarify.

    • Karthik Rangappa says:

      Rohit, usually this is the case i.e. if you choose slightly OTM to write and far OTM to buy. But then this can change based on the premium and the market circumstances.

  100. Vikas says:

    Hi karthik,

    Few questions.

    1. What type of stocks are more suitable for this strategy?
    2. Any formula to determine the range to stay profitable? Either % or stdev, anything.
    3. When should the trade be executed, beginning of month, mid or later?

    Seeking guidance on stock and range selection, I did iron condor for Pnb in jul and the margin requirements shot up dramatically week over week, almost 10 times of original margin. I had to exit before expiry.

    Great series. Thank you.

    • Karthik Rangappa says:

      1) Any stock which is liquid
      2) Nothing specific that I can think of
      3) Around mid if good enough

      Did you have other positions apart from the Iron Condor?

  101. Vikas says:

    For Point# 2 – How far OTM should be considered for iron condor? Too close is risky and too far is not liquid. Is stdev 1 a good enough distance considering we are at mid way for expiry. Or should I go by max OI positions on both sides? How do you choose the strike prices for this strategy?

    Yes Karthik, Now I realise that I had squared off the CE side before PE side considering the movement in the stock.

  102. shivam puri says:

    Sir i have two questions
    1. Do theta decay happens during the market ?
    2. what will be the impact of carrying positions over weekend ?

    • Karthik Rangappa says:

      1) Yes, it is on a continuous basis. However, the effect of it is largely felt closer to expiry.
      2) Only some theta effect, nothing apart from that from the Greeks perspective.

  103. Gaurav Kumar says:

    Hii Karthik,

    I was trying Iron condor on stocks and I observed that the Net premium received is less than the max loss. But same I tried with Nifty index it is reversed, premium received is more than max loss.Why it is so?
    Pls elaborate this..

    2).Another query suppose I make Iron condor yesterday with Nifty spot price 11095 (Sold 11300CE and 10900PE, Bought 11500CE and 10700PE). Net premium received 120 and Max.loss 80.

    If I want to exit in 2-3 days then how much premium would I able to make considering the index in range.

    • Karthik Rangappa says:

      But why are you comparing a max loss with net premium received? What you need to look at is the potential max loss versus the potential max profit at expiry. It is hard to estimate the P&L before expiry as it involves multiple assumptions. However, you can log into Sensibull platform to check this.

  104. koushik says:

    I have been working on these hedged positions for a while and today morning when i thought of doing a earnings trade for tomorrows results of amarajabat share it happens to go like this, amarajabat spot =720
    720ce buy premium =28*2 lots (leg 1)
    740ce sell premium =21*3 lots (leg 2)
    780ce buy premium =10 one lot (leg 3)
    now ,i was able to figure out the max profit that is on expiry if spot ends up near 740 and it happen to be 37,600 and does matter how low the share price goes the max loss is limited to 3000, now im struck calculating the loss if share price goes beyond 780 (eg: if spot goes up to 900) so please help me solve this .
    thank you very much.

  105. koushik says:

    yes sir ,this is not an iron condor .I just need help in calculating the risk if share price rallies up and my reason is to collect premiums before the results were volatility is high and at same time hedge the position so that we come out with minimum loss if share price moves violently .
    thank you .

    • Karthik Rangappa says:

      The best way to deal with this is to put the numbers on excel and measure the pay off from each strike against hypothetical market expiries. This will help you understand the risk and reward. In fact, I’ve done the same thing on every strategy chapter.

  106. koushik says:

    sir ,
    And it turns to 3000 max loss either side (from 722 down side and from 777 up side ) am i correct sir ?

    • Karthik Rangappa says:

      Possible, cannot comment on this unless you put the numbers on excel or actually you can do this on Sensibull strategy wizard as well.

  107. koushik says:

    thank you sir got it

  108. Jitu says:

    Hi Karthik sir , I am a big fan of Zerodha varsity as whatever trading knowledge I have today is coz of Virsity, Thank you for everything sir:)

    I am trying to learn Iron fly strategy as well, when it is going to get added on virsity , I am searching for “what should be the ideal IV percentile” to initiate iron fly, Please provide your guidance on this sir …

    • Karthik Rangappa says:

      Ah, I’m not sure about the Iron fly myself, have never traded that. Will have to research myself πŸ™‚

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