A family office expects the bank index, at 48,000, to stay between 47,000 and 49,000 for two weeks. Compare selling the 46,500 put and 49,500 call for 180 points with adding 46,000 and 50,000 wings for a net 120, at 45,000, 48,000 and 51,500.

Present the iron condor: it gives up 60 points of credit to turn an unlimited loss into a maximum of 380 points. At 48,000 the strangle makes 180 and the condor 120. At 45,000 the strangle loses 1,320 and the condor 380; at 51,500 the strangle loses 1,820 and the condor again 380. For a family office the defined loss, about Rs 1.14 lakh at most on 20 lots, is worth more than the extra 60 points.

Both structures sell insurance against a big move: the family office collects premium and pays out if the index leaves the range. The difference is whether the office buys some insurance back. A shopkeeper who sells extended warranties but buys a reinsurance policy for the worst claims keeps less of each sale but cannot be wiped out by one bad batch. The strangle sells the tails outright; the iron condorA short strangle with a further out put and call bought as protection, so the maximum loss on each side is the gap between strikes less the credit received. sells them and buys back the far tails, capping the loss at the gap between strikes less the credit. Each wing is 500 points wide, and the two wings together cost 60 points.

At 48,000 every option expires worthless and each structure keeps its credit: 180 for the strangle, 120 for the condor. At 45,000 the short 46,500 put is 1,500 in the money; the strangle loses 1,500 less 180, minus 1,320. The condor's long 46,000 put is worth 1,000 there and pays back most of it: 120 less 1,500 plus 1,000, minus 380. At 51,500 the strangle's short call is 2,000 in the money, minus 1,820; the condor's long 50,000 call is worth 1,500, minus 380 again. The condor's loss is the same on both sides past the wings, because it can never exceed the 500-point width less the 120 credit.

The strangle's breakevens are 46,320.0 and 49,680.0; the condor's are 46,380.0 and 49,620.0, only 60 points narrower on each side. So the condor gives up a third of the credit and a sliver of the range to remove the outcome that ends relationships: a gap of several per cent on a policy announcement or a bank-specific shock. Bank indices have a habit of making exactly those moves around rate decisions and results. The condor also needs much less margin, because the exchange can see its maximum loss, which frees the office's capital. Say the cost plainly too: the condor's reward of 120 against a risk of 380 means it needs to be right well over three times in four to come out ahead over many trades, and the client should hear that before signing.

The limit of either structure is that it is a view on a range, not a hedge of anything the family office owns. If the office also holds bank shares, the short put side adds to its existing exposure in a fall, and that should be part of the conversation.