The upside profit is larger than the downside of Iron Condor

Discussion in 'Options' started by pastecopy, Oct 19, 2012.

  1. pastecopy


    Dear everyone,

    When a Iron Condor is built, normally the max profit is lesser than the max loss during expiration but somehow after 4 days of option purchase, the max profit ($700) is more than the max loss (-300).

    Anyone knows what's going on?

    The Iron Condor has been adjusted once and the option has 30 days to expiration.

    Thank you,
  2. MTE


    You statement is inaccurate. The risk/reward ratio of an iron condor depends on how far OTM the options are. So the closer the options are to ATM the higher the reward and the lower the risk.
  3. When you sell (to open) an Iron Condor, your max profit is the initial credit that you receive. Your max loss is the width of the spreads, minus the initial credit received.

    As an example, if you sold a RUT iron condor (870/880 call spread, 770/760 put spread) for 3.50, your max profit would be 3.50 and your max loss, if held through expiration, would be 6.50.

    You will notice the unrealized P+L on your open IC fluctuate as the underlying moves and implied volatility changes.
  4. pastecopy


    Thank you guys for your replies, really appreciate. Still learning and getting there soon.