How Does a ‘Short Iron Condor’ Strategy Manage the Risk of Selling Options?

A short iron condor is a defined-risk, market-neutral strategy that involves selling an out-of-the-money call and put (a short strangle) and simultaneously buying a further out-of-the-money call and put (the wings). The purchased options cap the potential loss from the sold options, defining the maximum risk.

The strategy profits if the underlying price stays within the wings, capturing the net premium collected.