Short Iron Condor
To sell or "go short" an iron condor, the trader will buy (long) options contracts for the inner strikes using an out-of-the-money put and out-of-the-money call options. The trader will then also sell or write (short) the options contracts for the outer strikes.
Because the premium earned on the sales of the written contracts is very likely less than the premium paid for the purchased contracts, a short iron condor is typically a net debit transaction. This debit represents the maximum potential loss for the short iron condor.
The potential profit for a short iron condor is the difference between the strikes on either the call spread or the put spread (whichever is greater if it is not balanced) multiplied by the size of each contract (typically 100 or 1000 shares of the underlying instrument) less the net debit paid.
A trader who sells an iron condor speculates that the spot price of the underlying instrument will not be between the short strikes when the options expire. If the spot price of the underlying is less than the outer put strike, or greater than the outer call strike at expiration, then the short iron condor trader will realise the maximum profit potential.
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