The Ultimate Monthly Iron Condor Strategy on Nifty

The Ultimate Monthly Iron Condor Strategy on Nifty

A complete guide with rules, risk management, adjustments, and practical insights.

WHAT IS AN IRON CONDOR?

The Iron Condor is a neutral options strategy used to profit from time decay and range-bound price action. It involves selling both:

  • A Bear Call Spread: Sell OTM Call + Buy further OTM Call
  • A Bull Put Spread: Sell OTM Put + Buy further OTM Put
✅ We don’t use the Iron Condor for high reward, but for its high probability of profit (POP).

WHY USE THE IRON CONDOR STRATEGY?

✅ Advantages

  • High win rate (POP ~65-70%)
  • Defined, limited risk
  • Adaptable with adjustments
  • Excellent for sideways markets

❌ Disadvantages

  • Poor initial Risk:Reward ratio
  • Requires active monitoring
  • Not suitable for trending markets
  • Adjustments can be complex

ENTRY SETUP: BUILDING THE CONDOR

StepAction
1Enter the trade 25–30 DTE (monthly expiry).
2Sell a Put option with a Delta of +16 to +20.
3Buy a Put hedge ~200–300 points lower.
4Sell a Call option with a Delta of –16 to –20.
5Buy a Call hedge ~200–300 points higher.
6Aim for a total credit of ₹90–₹130 per share.

KEY RULES: EXIT AND ADJUSTMENT

🔴 Exit Rules: When to Close the Position

  1. Target Profit Exit: Close the entire position after capturing 75–80% of the initial credit.
  2. Time-Based Exit: Close the position 3–5 days before expiry to avoid unpredictable gamma spikes.
  3. Stop Loss Exit: If a side is breached and you cannot adjust, exit the trade to cap losses.
  4. Do Not Hold Unhedged: Never hold the position into expiry unless it’s a managed Iron Fly with an active stop loss.

🔁 Adjustment Rules: When and How to Firefight

RuleDescription
TriggerAdjust if the Losing Leg’s Premium is ≥ 2x the Winning Leg’s Premium.
ActionBook profit on the winning spread. Sell a new spread on that same side with a premium that is roughly equal to the losing leg’s premium.
Final StopIf the position becomes an Iron Fly (short strikes are the same), set a 10% stop loss on the premium of both legs.

ADJUSTMENT IN ACTION: A DEEP DIVE CASE STUDY

This case study, based on the highly trending November 5th, 2020 expiry, shows how a losing trade can be actively managed into a profitable one through disciplined firefighting.

📆 Initial Setup (Nov 2nd, Nifty at 11,616)

An Iron Condor is deployed with the following legs:

  • Sell 12000 CE @ ₹15.7
  • Sell 10950 PE @ ₹15.75
  • (Hedges were also bought to define risk)

At this point, the position had:

  • Max Profit: +₹1,072
  • Max Loss: -₹10,177 (A very poor initial Risk:Reward ratio)
Image Placeholder: Initial Payoff Graph & Position Details

🛠️ First Adjustment (Nov 3rd, Nifty Rallies to 11,815)

The market turns bullish, causing the Call leg to become a loser and the Put leg to decay. The adjustment trigger is met as the losing Call premium (now ₹31.55) is more than 2x the winning Put premium (now ₹6.4).

  • Action 1: Book profits on the winning 10950 PE spread, as its premium has decayed significantly.
  • Action 2: Sell a new, higher Put spread (11500 PE) to collect a premium (~₹36.4) that matches the increased premium of the losing Call leg.

This “re-centers” the risk by using the premium from a new put to offset the unrealized loss on the call.

🛠️ Second Adjustment (Nov 4th, Nifty Continues to 11,922)

The bullish trend persists. The 11500 PE spread from the previous adjustment has now decayed, while the 12000 CE continues to be under pressure.

  • Action 1: Book profits on the 11500 PE spread.
  • Action 2: Sell an even higher Put spread (11750 PE) to again collect premium (~₹25) that matches the call leg.
Image Placeholder: Payoff graph after the second adjustment

⛔ Final Stage: The Iron Fly (Nov 5th, Nifty at 12,058)

After a final adjustment, the short Put strike is rolled all the way up to 12,000, making it identical to the original short Call strike. The position has now transformed into an Iron Fly at the 12000 strike.

  • Action: This is the final defensive line. A 10% Stop Loss is placed on both the Call and Put legs. The goal is to either let time decay work its magic or exit on the SL.

📈 The Final Result

The market remained in range around expiry. The trade was closed for a 2% ROI on deployed capital. Most importantly, by taking credit from the winning side continuously, the max risk was successfully reduced from -₹10,177 down to just -₹5,505.

THE EVOLUTION OF RISK:REWARD

Proper adjustments are critical because they fundamentally improve the trade’s risk profile. Note: The standard format is `Risk:Reward`.

How Adjustments Improve the Trade

StageRisk:Reward (Approx.)Status
Initial Entry10:1 or worseHighly Unfavorable
After Adjustments~2:1Improved
Final (Iron Fly with SL)~1:1Favorable
🔑 Adjustments turn a statistically strong but asymmetric trade into a balanced and more favorable setup.

RISK & MARGIN

💰 Risk Calculation (From Case Study)

This demonstrates the power of adjustments in managing risk. The lot size in Nov 2020 was 75.

  • Initial Max Profit: +₹1,072
  • Initial Max Loss: -₹10,177
  • Final Max Loss (After Adjustments): -₹5,505

Margin Requirement (Current Scenario)

For a new Iron Condor today (Nifty Lot Size = 25):

  • Total Capital Needed: ₹40,000 – ₹50,000 per lot (approx.)

✅ Always use a broker’s margin calculator for live values before trading.

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