Condor Spread Trading Strategy
Condor spread is a multi-leg options trading strategy. It is a complex neutral trading strategy with limited profit and limited risk. Like butterfly options trading strategy, condor spread strategy also has maximum profit and loss levels; but instead of 3 legs it consists of 4 legs. Condor spread is a debt spread options strategy and employed when minimum change is expected in underlying stock price.
A long condor spread involves 4 call options - 2 in-the-money (ITM) and 2 out-of-the-money (OTM) options. Condor trader enters the trade by writing an ITM call of lower strike price, buying an ITM call of even lower strike price, writing an OTM call of higher strike price and selling an OTM call of even higher strike price. Traders can also construct put condor spreads using puts instead of calls.
Maximum profit is attained when the underlying stock price on expiration is between lower short and long call strike prices. Maximum profit is the difference between lower short and long calls minus net debt taken to enter the trade. Maximum lose occurs when underlying stock price on expiration is above highest strike price or below lowest strike price. Maximum loss is the net debt taken to enter the trade.
Compared to most other neutral trading strategies, condor spread has lower profit potential, higher loss potential and include higher commissions. But it has wider profit range.
A long condor spread involves 4 call options - 2 in-the-money (ITM) and 2 out-of-the-money (OTM) options. Condor trader enters the trade by writing an ITM call of lower strike price, buying an ITM call of even lower strike price, writing an OTM call of higher strike price and selling an OTM call of even higher strike price. Traders can also construct put condor spreads using puts instead of calls.
Maximum profit is attained when the underlying stock price on expiration is between lower short and long call strike prices. Maximum profit is the difference between lower short and long calls minus net debt taken to enter the trade. Maximum lose occurs when underlying stock price on expiration is above highest strike price or below lowest strike price. Maximum loss is the net debt taken to enter the trade.
Compared to most other neutral trading strategies, condor spread has lower profit potential, higher loss potential and include higher commissions. But it has wider profit range.
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posted by Daniel Pipitone at
5:28 AM
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