The structure
Four legs, one expiry, all out of the money:
long put (lowest) · short put · short call · long call (highest)
It is two credit spreads sold at once — a bull put below the market and a bear call above it. You collect both credits and win if the underlying finishes between the short strikes.
max profit = the net credit
max loss = wider wing − credit
profit zone = short put − credit … short call + credit
The maximum loss is the wider wing, not both
Only one side can be breached at expiry. The underlying cannot finish both below the short put and above the short call, so the two wings never lose together — the loss is capped by the wider of them.
That has a consequence people miss. Widths of 5 on the puts and 10 on the calls collect credit from both sides while carrying the risk of the 10. The position looks balanced on the screen and is not, and the calculator says so rather than quietly using an average.
The symmetric case is the common one and the honest default: equal wings, one number.
The trade the win rate actually describes
Five-wide wings collecting $1.60 risks $3.40 to make $1.60. That needs a 68% win rate to break even.
An iron condor placed outside the expected move typically wins around 80% of the time. So the edge is real, and it is thinner than the win rate suggests: the gap between 80% and 68% is the entire business, and it disappears if the strikes are placed slightly too close or the credit is slightly too small.
Two consequences worth acting on:
- One loss costs about two wins. A run of four winners and one loser is roughly flat. Position sizing has to assume the loser arrives.
- Placement is the whole edge. Expected move tells you where 1σ sits; short strikes inside that range collect more credit and lose far more often than the credit compensates for.
When to place one, and when not to
Iron condors are short volatility twice over: short gamma, and short vega on both sides. They are priced best when implied volatility is high relative to its own recent range — which is what IV rank measures.
Selling one in a low-IV environment collects a small credit for the same maximum loss, which is the worst version of an already thin trade. Selling into an event — earnings, a central bank decision — collects a large credit precisely because the market expects a move larger than the wings.
The position also does badly in a sustained trend, which is the failure mode that surprises people: nothing dramatic happens, the underlying simply walks out of the zone and stays there.