How to Calculate Max Loss and Max Profit on an Iron Condor
An iron condor is a defined-risk, defined-reward options strategy, which means you can know your worst-case loss and best-case gain before you ever place the trade. The catch is that a surprising number of traders calculate it wrong — specifically, they average the two spread widths instead of using the wider one. That single mistake can lead to a position that’s carrying far more risk than the trader thinks. This guide walks through the correct formulas and a full worked example.
If you’d rather skip the manual math, the options profit calculator will compute all of this instantly, but understanding the mechanics below will help you sanity-check any tool’s output — and think clearly about strike selection.
The Four Legs of an Iron Condor
An iron condor is built from two credit spreads sold at the same time, on the same underlying, with the same expiration:
- Long put (lower strike) — the “insurance” that caps downside risk
- Short put (higher strike than the long put) — the put you’re selling for premium
- Short call (below the long call) — the call you’re selling for premium
- Long call (higher strike) — the “insurance” that caps upside risk
The short put and long put form your put spread (the downside wing). The short call and long call form your call spread (the upside wing). You collect premium from both spreads, and that combined premium is your net credit.
Between the two short strikes sits your profit zone — if the underlying finishes anywhere in that range at expiration, both spreads expire worthless and you keep the full credit.
Max Profit
This one is straightforward:
Max profit = net credit × 100 × number of contracts
You collect the credit up front when you open the trade. If the stock stays between the short put and short call through expiration, neither spread gets exercised, and the entire credit is your profit. It doesn’t matter how wide either wing is — max profit only depends on the credit you received.
Max Loss (and the Wider-Wing Rule)
Here’s where most confusion happens. The two wings of an iron condor don’t have to be the same width. A trader might sell a $5-wide put spread and a $10-wide call spread on the same underlying. When that happens, max loss is driven by the wider wing — not the average of the two wings.
Max loss = (width of the wider wing − net credit) × 100 × number of contracts
Why the wider wing and not an average? Because the net credit you collected is shared across the entire position, but only one side can be breached at expiration — the stock either finishes below your puts or above your calls, never both. If the stock crashes through the narrower wing, your loss is capped at that wing’s width minus the credit. If it rips through the wider wing instead, your loss is capped at that wing’s width minus the same credit — and since the width is bigger, the loss is bigger. The worst realistic outcome, and therefore your true max loss, is always tied to the wider side.
Averaging the two widths understates this risk. If you use the average instead of the wider wing, you’ll calculate a smaller number than your broker’s margin requirement will actually reflect — and smaller than the loss you could really take.
Breakeven Points
An iron condor has two breakeven prices, one on each side:
- Lower breakeven = short put strike − net credit
- Upper breakeven = short call strike + net credit
Between these two prices, the position is profitable (though only fully profitable — max profit — once you’re between the two short strikes). Outside these two prices, the position loses money, up to the max loss.
Worked Example
Let’s say a stock is trading near $100, and you open the following iron condor, all with the same expiration:
| Leg | Strike | Action |
|---|---|---|
| Long put | $90 | Buy |
| Short put | $95 | Sell |
| Short call | $105 | Sell |
| Long call | $115 | Buy |
Notice the wings aren’t symmetric: the put spread is $5 wide ($95 − $90), while the call spread is $10 wide ($115 − $105).
You collect a total net credit of $2.00 per share ($200 per contract) for selling this structure.
Step 1: Identify the wider wing. Put wing width = $95 − $90 = $5 Call wing width = $115 − $105 = $10 The wider wing is the call side, at $10.
Step 2: Calculate max profit. Max profit = $2.00 × 100 × 1 contract = $200
Step 3: Calculate max loss using the wider wing. Max loss = ($10 − $2.00) × 100 × 1 contract = $8.00 × 100 = $800
Step 4: Calculate breakevens. Lower breakeven = $95 − $2.00 = $93.00 Upper breakeven = $105 + $2.00 = $107.00
Sanity check with the wrong method: If you’d mistakenly averaged the wings — ($5 + $10) / 2 = $7.50 — you’d have calculated max loss as ($7.50 − $2.00) × 100 = $550. That’s $250 less than your actual risk of $800. If the stock gapped above $115 at expiration, you’d be on the hook for $800, not the $550 you budgeted for — a costly surprise that’s entirely avoidable by using the correct formula.
Quick Reference
| Metric | Formula |
|---|---|
| Net credit | Put spread credit + call spread credit |
| Max profit | Net credit × 100 × contracts |
| Max loss | (Wider wing width − net credit) × 100 × contracts |
| Lower breakeven | Short put strike − net credit |
| Upper breakeven | Short call strike + net credit |
Related Reading
If you’re still deciding whether an iron condor fits your outlook, see the iron condor 101 guide for the mechanics of setting one up, or compare it against a narrower-risk alternative in iron condor vs. iron butterfly. You can also check the general options glossary for definitions of terms like strike, premium, and assignment.
Frequently Asked Questions
Does max loss on an iron condor use the average of both wing widths? No. Max loss is based on the wider of the two wings, not the average. Because the position can only be breached on one side at expiration, the worst-case scenario is always tied to whichever wing is widest, minus the total net credit received.
Can an iron condor lose more than the max loss? No. Because both the put side and call side are fully hedged with long options, your loss is capped at (wider wing width − net credit) × 100 × contracts, regardless of how far the stock moves.
What happens if the stock finishes exactly at a short strike? If the stock finishes exactly at the short put or short call strike at expiration, that option typically expires worthless or is very close to it, and you keep most or all of the credit on that side — though pin risk near the strike can create minor uncertainty depending on your broker’s assignment procedures.
Why would a trader use unequal wing widths in the first place? Unequal wings let you tailor the risk/reward and probability profile to a directional lean — for example, widening the call side if you think a big upside move is less likely than a downside move, in exchange for taking on more risk on that side.