The worst outcome a defined-risk position can produce; for undefined-risk positions it does not exist in any useful sense.
For a debit structure it is what you paid. For a credit vertical it is spread-width minus credit. This is the number that should drive position-sizing: contracts equals dollars you are willing to lose divided by maximum loss per contract.
Two warnings. Maximum loss assumes you hold to expiration and that both legs behave; early-assignment or a corporate-action can change the picture. And it is a per-position number — a portfolio of correlated condors can hit maximum loss on all of them the same day.
Example: risking 1% of a $50,000 account is $500. The XYZ $45/$42.50 put spread risks $175 per spread. Two spreads risk $350, three risk $525. So you trade two, not "a few".
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Working out a position size. Three numbers decide how big a trade is: the account, the share of it put at risk, and the distance from entry to stop. One percent of $25,000 is a $250 budget, and a $0.50 stop divides into that 500 times.
Educational only, not advice. Spotted an error? Post in Site Feedback.