Iron Condor Strategy & Butterfly Spread

If you’re into options trading, you’ll hear traders talk about smart ways to make steady money when a stock price stays within a certain range. Two popular range-bound strategies are the Iron Condor and the Butterfly Spread. Both are low-risk, low-reward methods that work best when you think the stock won’t move too much.
Let’s break each down in the simplest way!

What is an Iron Condor Strategy?

The Iron Condor is a fancy name, but it’s actually pretty easy once you get it.

1. It’s a neutral options trading strategy that makes money if the stock stays within a certain price range.

2. It combines two spreads — a bear call spread and a bull put spread — at the same time.

How it works:

Sell an out-of-the-money call option.
Buy a further out-of-the-money call option.
Sell an out-of-the-money put option.
Buy a further out-of-the-money put option.

All four options have the same expiration date but different strike prices.

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Iron Condor Example

Let’s say:
- ABC Ltd. stock is at ₹500.
- You think it will stay between ₹480 and ₹520 for the next month.
So you:
- Sell a ₹520 call & buy a ₹530 call (bear call spread).
- Sell a ₹480 put & buy a ₹470 put (bull put spread).
If the stock stays between ₹480 and ₹520 until expiry, all four options expire worthless, and you keep the premium you received for selling the options.

Benefits of Iron Condor

1. Benefits of Iron Condor

Profit from low volatility: Perfect when you expect little price movement.
Limited risk: Maximum loss is capped.
Steady income: Premiums add up if the stock stays in range.

2. Risks of Iron Condor

Limited profit: Your maximum gain is the premium you collect.
If the stock price moves outside your spreads, you can lose money.

When to Use the Iron Condor

Use this strategy when:
✔️ You expect the stock or index to stay stable.
✔️ There’s no big news coming that might move the price.
✔️ You want regular, small profits with low risk.

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What is a Butterfly Spread?

A Butterfly Spread is another popular neutral options strategy. Like the Iron Condor, it works best when you think a stock’s price will stay near a certain point.
1. It combines a bull spread and a bear spread, but all options are calls (or all puts).
2. There are three strike prices involved:
- Lower strike (buy call)
- Middle strike (sell 2 calls)
- Higher strike (buy call)

Butterfly Spread Example

Let’s say:
- ABC Ltd. stock is at ₹500.
- You believe it will stay near ₹500 until expiry.
So you:
- Buy a ₹490 call.
- Sell two ₹500 calls.
- Buy a ₹510 call.
All options have the same expiry.
- If the stock stays exactly at ₹500, your profit is maximized.
- If the stock moves far away from ₹500, your profit shrinks.

1. Benefits of a Butterfly Spread

Low cost: Cheaper than other strategies because you collect some premium.
Limited risk: Your loss is capped.
Best when stock stays near the middle strike price.

2. Risks of Butterfly Spread

Limited profit: It’s never huge.
If the stock moves too much, you might lose the premium paid.

Feature	Iron Condor Strategy	Butterfly Spread Strategy
Market View	Neutral, expects low volatility with a wider range	Neutral, expects very low volatility near a specific price
Number of Options	4 legs: 2 calls (bear call spread) + 2 puts (bull put spread)	4legs: all calls or all puts (bull & bear spread together)
Strike Prices	Uses 4 different strikes (2 calls + 2 puts)	Uses 3 different strikes (lower, middle, higher)
Profit Zone	Wider profit range — good if price stays within two outer strikes	Narrower profit zone — best if price stays near middle strike
Premium Collected	Usually a net credit (you receive premium)	Usually a net debit (you pay premium)
Maximum Profit	Limited — equal to total premium received	Limited — highest if stock stays exactly at middle strike
Maximum Loss	Limited — defined by width of spreads minus premium received	imited — defined by distance between strikes minus premium
Ideal For	Earning steady income from stable, range-bound stocks	Earning profit when you strongly expect stock will stay near one price
Risk Level	Risk Level Low to moderate, clearly defined	Low to moderate, clearly defined
Use Case	When you think the stock will move sideways within a comfortable range	When you think the stock won’t move much from its current level

When Should You Use These Strategies?

1. Use the Iron Condor if you expect the stock to stay within a wider range.
2. Use the Butterfly Spread if you think the stock will stick close to one price.
3. Both work best when the market is calm and not too volatile.

Quick Tips for Beginners

Pick liquid stocks or indexes for better option fills.
Watch for earnings announcements or big news — they can ruin range-bound strategies!
Practice on paper trades to get comfortable with multiple legs.

The Iron Condor and Butterfly Spread are smart options trading strategies that help you profit in quiet, sideways markets. They keep your risk limited and your profit potential clear — making them a favorite for many options traders who want steady, low-risk income.

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