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1. Lecture No 36
Short Iron Condor
Rohan Sharma (Coach)

2. Basics Concepts – Short Iron Condor
Proficiency -
Advanced
Direction – Neutral
Volatility - High
Asset Leg –
Short Put + Long
Put + Long Call +
Short Call
Max Risk - Limited
Max Reward -
Limited
Capital Gain
Strategies

3. Description – Short Iron Condor
 The Short Iron Condor involves putting together a Bear Put Spread
and a higher strike Bull Call Spread.
The higher strike put has a lower strike than the lower strike call to
create the Short Condor shape.
The resulting position is profitable in the event of a big move by the
stock.
The problem is that the reward is seriously capped and is typically
dwarfed by the potential risk if the stock fails to move.

4. Description – Short Iron Condor
Sell one lower strike (OTM) put.
Buy one middle strike (OTM) put.
Buy one middle strike (OTM) call.
Sell one higher strike OTM call.
All options share the same expiration date for this strategy.
For this strategy, you must use both calls and puts. A Short Iron Condor is the
combination of a Bear Put Spread and a Bull Call Spread.
The long put strike is lower than the long call strike.
Remember that there should be equal distance between the three strikes.

5. Context - Short Iron Condor
Outlook
With short iron condors, your profile is direction neutral.
You are looking for increased volatility in the stock price, but you
are not concerned with the direction.
Rationale
With short iron condors, you are looking to execute an inexpensive,
capped yield trade where your maximum profits occur if the stock
finishes on either side of the upper and lower strike prices at
expiration.
You are anticipating greater volatility in the stock price.

6. Context - Short Iron Condor
Net Position
•This is a net debit trade.
•Your maximum risk is your net debit you pay.
•Your maximum reward is the difference between any
adjacent strike prices less the net debit.

7. Context - Short Iron Condor
Effect of Time Decay
 Time decay is generally harmful to your trade here because you are
looking for a lot of movement in the stock price.
After the position has become profitable, time decay becomes
helpful.
Time Period to Trade
At least months out.
Breakeven Down = [Middle strike - net Debit]
Breakeven Up = [Middle strike + net Debit]

8. Steps to Trading a Short Iron Condor
Steps In
Actively seek chart patterns that appear like pennant formations,
signifying a consolidating price pattern.
Steps Out
Manage your position according to the rules defined in your Trading
Plan.
Remember that the Short Iron Condor is a combination of other
strategies, so it can be unraveled in two-leg chunks.
You can unravel the position just before expiration—remember to
include all the commissions in your calculations.

9. Exiting the Trade - Short Iron Condor
Exiting the Position
 With this strategy, you can simply unravel the spread by buying
back the options you sold and selling the options you bought in
the first place.
Advanced traders may leg up and down or only partially unravel
the spread as the underlying asset fluctuates up and down.
Mitigating a Loss
Unravel the trade as described previously.
Advanced traders may choose to only partially unravel the spread
leg-by-leg and create alternative risk profiles.

10. Advantages and Disadvantages
Advantages
Profit from a volatile stock with little capital outlay.
Capped risk.
Comparatively high profit probability if the stock moves.
Disadvantages
The higher profit potential comes with a wider range between the
strikes.
The higher profit potential only comes nearer expiration.
The potential loss is far greater than the amount by which you can
profit.
Bid/Ask Spread can adversely affect the quality of the trade.
Complicated strategy for the intermediate trader.

11. Real Time Example
Rohan Sharma (Coach)

12. Price Movement
Position on Charts
Rohan Sharma (Coach)

14. Example – Short Iron Condor
Market Behavior Nifty
Option /Future Call & Put
Action (Long/ Short) Both
Price Movement Expectation Side Ways , High Volatility Expectation
Spot Price 10900
Strike Price (Short OTM PUT) 10700 Premium 35
Strike Price (Long OTM PUT) 10800 Premium 70
Strike Price (Long OTM CALL) 11000 Premium 68
Strike Price (Short OTM CALL) 11100 Premium 45
Break Even (Up) (Middle strike + Net Credit) = (10900 + 58) = 10958
Break Even (Down) (Middle strike - Net Credit) = (10900 - 58) = 10842
Time to Expiry Mid/Last of the Month
Position of Price in Charts Sideways
Max Risk Limited
Max Reward Limited

15. Short Iron Condor
Strike Price (Short OTM PUT) 10700 Premium 35 BEP 10665
Strike Price (Long OTM PUT) 10800 Premium 70 BEP 10730
Strike Price (Long OTM CALL) 11000 Premium 68 BEP 11068
Strike Price Short OTM CALL 11100 Premium 45 BEP 11145
Nifty at
Expiry
Short OTM PUT
BEP - 10665
Long OTM PUT
BEP – 10730
Long OTM CALL
BEP – 11068
Short OTM CALL
BEP - 11145
Total P&L
11400 35 -70 332 -255 42
11300 35 -70 232 -155 42
11200 35 -70 132 -55 42
11100 35 -70 32 45 42
11000 35 -70 -68 45 -58
10900 35 -70 -68 45 -58
10800 35 -70 -68 45 -58
10700 35 30 -68 45 42
10500 -165 230 -68 45 42