How to use it
- Enter the four strikes from lowest to highest: long put, short put, short call, long call.
- Enter the net credit per share you receive for the four legs.
- Enter contracts and shares per contract (usually 100).
- Enter a price at expiration to see the profit or loss there.
Formula
With strikes K1 < K2 ≤ K3 < K4 and credit c per share, at expiration price P:
- P/L per share = c − max(0, K2 − P) + max(0, K1 − P) − max(0, P − K3) + max(0, P − K4)
- Maximum profit = c; maximum loss = max(K2 − K1, K4 − K3) − c
- Break-evens: K2 − c and K3 + c
- Money = per share × shares per contract × contracts
Worked example
Strikes 90 / 95 / 105 / 110 for a credit of 1.50, one contract of 100 shares:
- Maximum profit 1.50 × 100 = 150.00.
- Maximum loss (5 − 1.50) × 100 = 350.00.
- Break-evens 93.5 and 106.5.
- Reward to risk 150 ÷ 350 = 0.429, return on risk 42.86 %.
- At 100 you keep 150.00; at 94 it is 1.50 − 1 = 0.50 × 100 = 50.00; at 80 the loss is the full 350.00.
Tips
- Wider short strikes win more often but collect less credit; the reward-to-risk shows the trade-off.
- The maximum loss is usually larger than the maximum profit; check that the credit is worth the risk before entering.
- Commissions on four legs add up; subtract them from the credit for a realistic figure.