ForecastingStocks

An iron condor is a defined-risk, premium-collecting strategy that profits when the underlying stays inside a range. It is one of the most popular income strategies — and one of the most misunderstood in its risk.

The structure

Sell an OTM put spread and an OTM call spread on the same expiry:

Stock at 100
Sell put  strike 95, buy put  strike 90   (put spread)
Sell call strike 105, buy call strike 110 (call spread)
Net credit received = e.g. 2.00 (this is your max profit)

The payoff

Stock stays between 95 and 105: all four options expire worthless, you keep the full 2.00 credit. This is the win you are aiming for.
Stock breaks out of the range: one spread goes against you. Your loss is capped by the long wings at (spread width 5 - credit 2) = 3.00 maximum loss per side.

When to use it

Use it when you expect a range-bound, quiet market — low or falling volatility, no big events. You are selling the wings and collecting time decay (positive theta).

Honest risk — read this carefully

The iron condor's seductive feature is a high win rate: it profits most of the time. But the payoff is asymmetric — you risk 3 to make 2. A string of small wins can be erased by a single breakout that hits the full loss. It is short gamma and short vega, so a sharp move or a volatility spike hurts on both counts. Many traders are lured by the frequent green and then surrender months of gains in one bad week. Size it so the max loss — not the credit — is what you can afford to lose.