Iron Condor Max Profit and Max Loss
Calculate the maximum profit, maximum loss, and two break-evens of an iron condor before placing the trade.
Lesson path
Options, Risk Math, and Psychology
Iron Condors and Butterflies
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Calculate the maximum profit, maximum loss, and two break-evens of an iron condor before placing the trade.
Three numbers you need before clicking buy
Before you place an iron condor, you should know three numbers cold: max profit, max loss, and where the break-evens sit. These are not estimates. They are arithmetic. The trade is defined-risk, which means the platform can show you exact dollar figures the moment you build the ticket.
Max profit equals the net credit you receive. If you collected $1.20 on a single contract, max profit is $120 per contract — that is the most this trade can ever make. Max loss equals the wing width minus the credit. If your wings are $5 wide and you collected $1.20, max loss is ($5.00 − $1.20) × 100 = $380 per contract. The credit you took in reduces the loss, dollar for dollar.
Break-evens are the two prices at which the trade earns exactly zero at expiration. Upper break-even is the short call strike plus the credit. Lower break-even is the short put strike minus the credit. Take the same example: short call at 420, short put at 400, credit of $1.20. Upper break-even is 421.20, lower is 398.80. As long as the underlying closes between those two prices at expiry, you make some amount of money — full credit if it lands between the short strikes, less if it lands in the wings.
One sanity check before you click. Add max profit and max loss together. The sum should equal the wing width in dollars. In our example, $120 + $380 = $500, which matches a $5-wide wing at $100 per point. If those numbers do not reconcile, you have miscounted something. Re-check the legs.
Recap: max profit = credit. Max loss = wing width − credit. Break-evens = short strikes ± credit. Sanity check: max profit + max loss = wing width.
Knowledge check
Answer before moving on.
1. You sell a $5-wide iron condor on XLE and receive $1.50 credit. What is your max loss per contract?
2. Same condor: short call 420, short put 400, credit $1.20. Where is the upper break-even?
3. Why does a 1-to-3 risk-reward ratio on an iron condor not necessarily make it a bad trade?
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