An iron condor sells an out-of-the-money put spread and an out-of-the-money call spread in the same expiry, collecting both credits. It profits when the stock finishes between the two short strikes, which makes it a position on a range rather than on a direction. Every row here shows the credit, the maximum loss, the probability of profit and the risk/reward together.
Two credit spreads are opened at once: a bull put spread below the stock and a bear call spread above it. Both credits are collected up front. As long as the stock finishes between the two short strikes, both spreads expire worthless and the combined credit is the profit.
Only one side can be breached at expiry, which is why the maximum loss is the width of the wider spread minus the total credit rather than the sum of both. The position is at its best when nothing much happens, and it does not need to be right about direction at all.
Iron condors typically show a high probability of profit, because the stock has to move a long way in either direction to breach a short strike. That figure is honest, and it is also the point most often misread: a high win rate is paired with a payout that is small relative to the loss when it does go wrong.
Risk/reward is shown next to probability of profit for that reason. A structure that wins 80% of the time and loses four times the credit when it fails is roughly break-even before costs. The two numbers only mean something together.
The width of the wider spread minus the total credit received, multiplied by 100 per contract. Both sides cannot be breached at expiry, so the loss is capped by one spread rather than both.
Because both short strikes sit well out of the money, so the stock has a wide corridor to finish in. The trade-off is the payout: the credit is small relative to the maximum loss, which is why risk/reward belongs next to probability rather than instead of it.
In a sustained move in either direction, and particularly around a scheduled event such as earnings. It is a position that wants the stock to stay where it is, so anything that produces a large directional move is the adverse case.