Short Iron Condor

Overview:

Short Iron Condor spreads are a popular strategy due to the finite risk. The strategy combines a bear call spread and bull put spread with the same underlying and same expiration. The strategy is employed by buying a deep out-of-the-money put option, buying a deep out-of-the-money call option, selling an out-of-the-money put option and selling an out-of-the-money call option. All the options expire in the same month.

Main Uses:

1. Investors who think the underlying stock will trade in a range between now and expiration will invest in this strategy. The out-of-the-money call option and out-of-the-money put option act as protection in case the stock price moves either upwards or downwards.
2. Investors use this strategy to sell implied volatility on the underlying.

Profit / Loss Short Iron Condor:

The below graph is a profit / loss graph of a short iron condor using the OptionsHouse P&L calculator. The current stock price is at $113.78. A deep out-the-money put option was purchased with a strike price of $105. An out-of-the-money put option was sold with a strike price of $109. A deep-out-of-the-money call option was bought with a strike price of $123. An out-of-the-money call option was sold with a strike price of $119. The two break-even points are $108.86 and $119.14. As long as the stock trades between the two strike prices the investor will make money.

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