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Iron Condor Options Strategy Example

This example demonstrates a comprehensive Iron Condor options selling strategy with hedging for income generation and risk management.

Files​

  • main.py - Entry point to run the strategy
  • strategy.py - Main Iron Condor strategy implementation
  • position_manager.py - Position manager for options trades
  • README.md - This documentation

Strategy Logic​

The Iron Condor is a neutral options strategy that profits from low volatility and time decay with a wider profit zone than Iron Butterfly:

  • Sell OTM Call & Put: Generate premium income
  • Buy Further OTM Call & Put: Limit maximum loss (hedging)
  • Net Credit: Receive more premium than paid
  • Wider Profit Zone: Between the inner strikes
  • Max Loss: Limited to net debit paid

Strategy Components​

Iron Condor Structure​

Strike Prices: [Far OTM Put] [OTM Put] [OTM Call] [Far OTM Call]
Positions:     [BUY]         [SELL]    [SELL]    [BUY]

Example with Nifty at 19,000:​

  • Buy PE 18,800 (Far OTM Put) - Hedge
  • Sell PE 18,900 (OTM Put) - Income
  • Sell CE 19,100 (OTM Call) - Income
  • Buy CE 19,200 (Far OTM Call) - Hedge

Key Features​

  • ✅ Premium Collection: Sells OTM options for income
  • ✅ Risk Hedging: Buys further OTM options to limit losses
  • ✅ Wider Profit Zone: Larger range for profit than Iron Butterfly
  • ✅ Neutral Strategy: Profits from low volatility
  • ✅ Time Decay: Benefits from theta (time decay)
  • ✅ Risk Management: Limited maximum loss
  • ✅ Weekly Expiry: Trades current week options

Strategy Parameters​

Option Selection​

# Strike price offsets from ATM
inner_strike_offset = 10  # 10 points OTM for selling
outer_strike_offset = 20  # 20 points OTM for hedging

# Expiry selection
expiry = ("Weekly", 0)  # Current week expiry

Risk Management​

# Maximum loss threshold
max_loss = 500  # ₹500 maximum loss per trade

# Position sizing
lot_size = 1  # 1 lot per trade

Iron Condor vs Iron Butterfly​

Iron Condor​

  • 4 Different Strikes: Wider profit zone
  • Sell OTM Options: Lower premium but wider range
  • Buy Further OTM: Cheaper hedging
  • Profit Zone: Between inner strikes

Iron Butterfly​

  • 3 Strikes (2 Same): Narrower profit zone
  • Sell ATM Options: Higher premium but narrow range
  • Buy Adjacent OTM: More expensive hedging
  • Profit Zone: Around ATM strike

Iron Condor Explained​

What is Iron Condor?​

The Iron Condor is a four-leg options strategy that combines:

  1. Short Strangle (Sell OTM Call + Put)
  2. Long Strangle (Buy Further OTM Call + Put)

Profit & Loss Profile​

  • Maximum Profit: Net premium received
  • Maximum Loss: Net debit paid (limited)
  • Breakeven Points: 2 breakeven levels
  • Profit Zone: Between inner strikes (wider than Iron Butterfly)

When to Use​

  • Low Volatility: When expecting sideways movement
  • Wider Range: When price can move within a range
  • Time Decay: Close to expiry for maximum theta
  • Income Generation: Regular premium collection
  • Lower Risk: Compared to Iron Butterfly

Strategy Implementation​

Entry Conditions​

def should_trade(self):
    # No pending orders
    if len(self.pending_orders) > 0:
        return False

    # No existing positions
    if len(self.positions) > 0:
        return False

    # Within loss limits
    if self.net_pnl.loss >= 500:
        return False

    return True

Option Legs Creation​

# Far OTM Call (Hedge)
ce_far_otm = await self.add_option(
    symbol_name=SymbolType.Index.NIFTY,
    expiry_input=("Weekly", 0),
    option_type="CE",
    strike_price_input=20,  # 20 points OTM
)

# OTM Call (Sell)
ce_otm = await self.add_option(
    symbol_name=SymbolType.Index.NIFTY,
    expiry_input=("Weekly", 0),
    option_type="CE",
    strike_price_input=10,  # 10 points OTM
)

# OTM Put (Sell)
pe_otm = await self.add_option(
    symbol_name=SymbolType.Index.NIFTY,
    expiry_input=("Weekly", 0),
    option_type="PE",
    strike_price_input=-10,  # 10 points OTM
)

# Far OTM Put (Hedge)
pe_far_otm = await self.add_option(
    symbol_name=SymbolType.Index.NIFTY,
    expiry_input=("Weekly", 0),
    option_type="PE",
    strike_price_input=-20,  # 20 points OTM
)

Order Execution​

order_items = [
    # Buy Far OTM Call (Hedge)
    OrderItem(ce_far_otm, PositionType.BUY, 1),
    # Sell OTM Call (Income)
    OrderItem(ce_otm, PositionType.SELL, 1),
    # Sell OTM Put (Income)
    OrderItem(pe_otm, PositionType.SELL, 1),
    # Buy Far OTM Put (Hedge)
    OrderItem(pe_far_otm, PositionType.BUY, 1),
]

await self.create_multiple_orders(order_items=order_items)

Risk Management​

Position Sizing​

  • Lot Size: 1 lot per trade (adjustable)
  • Capital Allocation: Based on risk tolerance
  • Maximum Positions: 1 Iron Condor at a time

Loss Limits​

  • Maximum Loss: ₹500 per trade
  • Stop Loss: Exit if loss exceeds threshold
  • Position Monitoring: Real-time P&L tracking

Hedging Benefits​

  • Limited Risk: Maximum loss is net debit paid
  • Premium Collection: Earn from time decay
  • Wider Range: More forgiving than Iron Butterfly
  • Lower Cost: Cheaper hedging options

Example Scenarios​

Scenario 1: Profitable Trade​

Nifty Price: 19,000
Strategy: Iron Condor 18,800/18,900/19,100/19,200

Entry:
- Buy PE 18,800: ₹30 (debit)
- Sell PE 18,900: ₹80 (credit)
- Sell CE 19,100: ₹80 (credit)
- Buy CE 19,200: ₹30 (debit)

Net Credit: ₹100 (₹160 credit - ₹60 debit)

Exit at Expiry (Nifty = 19,000):
- All options expire worthless
- Profit: ₹100 (net credit received)

Scenario 2: Partial Loss Scenario​

Nifty Price: 19,000 → 19,050 (moves up slightly)

Exit at Expiry:
- PE 18,800: Expires worthless (₹0)
- PE 18,900: Expires worthless (₹0)
- CE 19,100: Exercise value ₹50 (loss)
- CE 19,200: Expires worthless (₹0)

Net Loss: ₹50 (₹50 loss - ₹0 gain)

Scenario 3: Maximum Loss Scenario​

Nifty Price: 19,000 → 19,300 (moves up significantly)

Exit at Expiry:
- PE 18,800: Expires worthless (₹0)
- PE 18,900: Expires worthless (₹0)
- CE 19,100: Exercise value ₹200 (loss)
- CE 19,200: Exercise value ₹100 (gain)

Net Loss: ₹100 (₹200 loss - ₹100 gain)

Performance Tracking​

Key Metrics​

  • Total Trades: Number of Iron Condor trades
  • Win Rate: Percentage of profitable trades
  • Average Profit: Average profit per trade
  • Maximum Drawdown: Largest consecutive losses
  • Premium Collected: Total premium received
  • Profit Zone Hit Rate: How often price stays in profit zone

Trade Logging​

🦅 IRON CONDOR TRADE EXECUTED
   Symbol: NIFTY
   Expiry: Weekly
   Strikes: 18,800/18,900/19,100/19,200
   Net Credit: ₹100
   Max Loss: ₹100
   Profit Zone: 18,900 - 19,100
==================================================

Best Practices​

Market Conditions​

  • Low Volatility: Best for Iron Condor
  • Range Bound: Price stays within profit zone
  • Time Decay: Close to expiry preferred
  • Liquidity: Ensure good option liquidity

Strike Selection​

  • Inner Strikes: Choose based on expected range
  • Outer Strikes: Far enough to limit risk
  • Strike Width: Balance between premium and risk
  • Volatility: Consider implied volatility

Risk Management​

  • Position Sizing: Start with small lot sizes
  • Loss Limits: Set strict maximum loss
  • Monitoring: Watch position closely
  • Exit Strategy: Have clear exit rules

Configuration​

Strike Price Offsets​

# Conservative (wider wings)
inner_strike_offset = 15  # 15 points OTM
outer_strike_offset = 30  # 30 points OTM

# Aggressive (narrower wings)
inner_strike_offset = 10  # 10 points OTM
outer_strike_offset = 20  # 20 points OTM

Risk Parameters​

# Conservative risk
max_loss = 300  # ₹300 maximum loss

# Aggressive risk
max_loss = 500  # ₹500 maximum loss

Usage​

python main.py

The strategy will automatically:

  • Connect to your broker
  • Check market conditions
  • Create Iron Condor positions
  • Monitor positions for exit
  • Manage risk according to limits

Example Output​

🦅 IRON CONDOR STRATEGY STARTED
📊 Market: NIFTY
⏰ Expiry: Weekly
💰 Max Loss: ₹500
==================================================

🦅 IRON CONDOR TRADE EXECUTED
   Symbol: NIFTY
   Expiry: Weekly
   Strikes: 18,800/18,900/19,100/19,200
   Net Credit: ₹120
   Max Loss: ₹80
   Profit Zone: 18,900 - 19,100
==================================================

📈 POSITION MONITORING
   Current P&L: ₹45
   Time to Expiry: 2 days
   Status: Profitable
   Nifty Price: 19,025 (In Profit Zone)
==================================================

Iron Condor vs Other Strategies​

vs Iron Butterfly​

  • Wider Profit Zone: More forgiving
  • Lower Premium: Less income per trade
  • Lower Risk: Cheaper hedging
  • Better for Beginners: More room for error

vs Straddle​

  • Limited Risk: Defined maximum loss
  • Lower Premium: Less income
  • Wider Range: More forgiving
  • Hedged: Protected against big moves

vs Strangle​

  • Limited Risk: Defined maximum loss
  • Lower Premium: Less income
  • Wider Range: More forgiving
  • Hedged: Protected against big moves

Next Steps​

Disclaimer​

This is an educational example. Options trading involves significant risk:

  • Limited Risk: Maximum loss is net debit paid
  • Time Decay: Options lose value over time
  • Volatility Risk: High volatility can cause losses
  • Assignment Risk: Early assignment possible
  • Liquidity Risk: May be difficult to exit

Always:

  • Understand the risks involved
  • Start with paper trading
  • Use proper position sizing
  • Have clear exit strategies
  • Consult with financial advisors
  • Never invest more than you can afford to lose