Short Iron Condor
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Direction
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Break Out
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Strategy Type
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Volatility
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Legs
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Buy OTM Put
Sell OTM Put (Lower Strike)
Buy OTM Call
Sell OTM Call (Higher Strike)
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Max Reward
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Capped to where the sold legs are positioned - the premium paid
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Max Risk
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Premium Paid
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Time Horizon
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Short to Medium
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Risk Profile
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Medium
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Payoff Diagram
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Description
The reverse (short) iron condor is a limited risk, limited profit trading strategy that is designed to earn a profit when the underlying stock price makes a sharp move in either direction.
Steps Involved
Suppose XYZ stock is trading at $45 in June. An options trader executes a reverse iron condor by selling a JUL 35 put for $50, buying a JUL 40 put for $100, buying another JUL 50 call for $100 and selling another JUL 55 call for $50. A net debit of $100 is taken upon entering the trade.
Rational
To setup a reverse iron condor, the options trader buys a lower strike out-of-the-money put, sells an even lower strike out-of-the-money put, buys a higher strike out-of-the-money call and sells another even higher strike out-of-the-money call. A net debit is taken to enter this trade.