This segment of Options Jive takes a closer look at why we manage Iron Condors at 50% of max profit.
When looking at the potential max loss and potential max profit of Iron Condors, we may wonder why we trade Iron Condors since the max loss is larger than the max profit. Even the expected payout is near or below zero dollars for Iron Condors. Yet, managing winners increases the win rate, and historical win rates prove larger than the theoretical win rates.
When we recalculate the expected payout while managing at 50% and using historical rates, we get a positive expected payout. Therefore, managing winners proves to be profitable overall as it increases the win rate and reduces the time spent in a trade.