---
description: "A neutral volatility strategy combining a bear put spread and a bull call spread with four equidistant strikes, paying a net debit to profit from a large move outside the inner strikes."
tags: [options, volatility, neutral, condor, iron]
---

# Short Iron Condor

**Section**: 2.51 | **Asset Class**: Options | **Type**: Volatility

## Overview
The short iron condor is a volatility strategy combining a bear put spread and a bull call spread. It consists of a short OTM put at K1, a long OTM put at K2, a long OTM call at K3, and a short OTM call at K4. All strikes are equidistant: K4 - K3 = K3 - K2 = K2 - K1 = kappa. This is a net debit trade. The trader's outlook is neutral. This is a capital gain strategy.

## Construction
- Sell 1 OTM put option at strike K1 (lowest)
- Buy 1 OTM put option at strike K2 (K2 > K1)
- Buy 1 OTM call option at strike K3 (K3 > K2)
- Sell 1 OTM call option at strike K4 (highest, K4 > K3)
- All same expiry; K2 - K1 = K3 - K2 = K4 - K3 = kappa (equidistant)

Net debit: D

## Payoff Profile
f_T = (K2 - S_T)+ + (S_T - K3)+ - (K1 - S_T)+ - (S_T - K4)+ - D

- Upper breakeven: S*_up = K3 + D
- Lower breakeven: S*_down = K2 - D
- Max profit: P_max = kappa - D  (if S_T <= K1 or S_T >= K4)
- Max loss: L_max = D  (if K2 <= S_T <= K3; inner spreads expire worthless)

## Key Conditions / Signals
- Neutral; expects stock to move significantly outside the [K2, K3] range
- Low implied volatility makes the net debit cheaper to enter
- Defined risk on both sides with defined maximum profit

## Notes
The short iron condor is the reverse of the long iron condor. A net debit is paid and the strategy profits from large moves in either direction. The maximum loss D occurs if the stock stays between K2 and K3; maximum profit kappa - D is achieved outside [K1, K4].