Condor

A condor strategy combines two call spreads or two put spreads; it involves four call legs, or four put legs, all with the same expiration date, generally with consistent distances between strike prices. The strategy gets its name from its 4-part structure, involving the two outer strikes (or "wings") and two inner strikes (representing the "body"). The two inner strikes are typically positioned around the current price of the underlying stock.

Long Condor (Calls)

A long condor using calls can be considered a combination of an in-the-money bull call spread, and an out-of-the-money bear call spread. It is created by purchasing a lower strike Call, selling a lower-middle strike Call, selling a higher-middle strike Call, and purchasing a consecutively higher strike Call, all with the same expiration date. The two middle strikes are typically positioned around the current price of the underlying stock. In order to be considered a standard condor, the 4 strike prices involved should be equidistant.

 

Example:

 

If the distance between the two middle strikes (the "body") is greater than the distance to the outer strikes (the "wings"), then the position may be considered to be an "albatross" spread.

 

The cost to purchase the outer strikes typically exceeds the premium received from selling the inner strikes; therefore, a long condor is typically established as a net debit position.

 

For use when investor anticipates:

Financial Characteristics:

Objective:

 

CollapsedEXAMPLE - Long Condor

Source: StreetSmart Edge

 

Trade Setup

Here is the breakdown for Rachael's setup and trade:

 

The Profit/Loss profile for this trade is as follows:

Note: Chart depicts strategy at expiration

 

Note: commissions have been excluded to simplify the calculations. Short options can be assigned at any time and therefore option sellers assume the risk of assignment at any point up until and including expiration.

 

Short Condor (Calls)

A short condor using calls can be considered a combination of an in-the-money bear call spread, and an out-of-the-money bull call spread. It is created by purchasing a lower strike Call, selling a lower-middle strike Call, selling a higher-middle strike Call, and purchasing a consecutively higher strike Call, all with the same expiration date. The two middle strikes are typically positioned around the current price of the underlying stock. In order to be considered a standard condor, the 4 strike prices involved should be equidistant.

 

Example:

 

If the distance between the two middle strikes (the "body") is greater than the distance to the outer strikes (the "wings"), then the position may be considered to be an "albatross" spread.

 

The cost to purchase the outer strikes typically exceeds the premium received from selling the inner strikes; therefore, a long condor is typically established as a net debit position.

For use when investor anticipates:

Financial Characteristics:

Objective:

 

CollapsedEXAMPLE - Short Condor

Source: StreetSmart Edge

 

Trade Setup

Here is the breakdown for Steve's setup and trade:

 

The Profit/Loss profile for this trade is as follows:

Note: Chart depicts strategy at expiration

 

Note: commissions have been excluded to simplify the calculations. Short options can be assigned at any time and therefore option sellers assume the risk of assignment at any point up until and including expiration.

 

Commissions, taxes, and transaction costs are not included in any of these strategy discussions, but can affect final outcome and should be considered. Please contact a tax advisor to discuss the tax implications of these strategies. Many of the strategies described herein require the use of a margin account.

 

Qualified Spreads

With a Qualified Spread, the purchased option is required to expire on the same or later expiration date than the option sold. When there is more than one possible way to pair available options in your Account, Schwab has the discretion to determine the spread pairings. Schwab may pair options in a manner that does not produce the lowest possible margin requirements.

Note: For butterfly and condor spreads, each option leg must have the same expiration date to qualify as those types of spreads.

 

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Multiple leg options strategies will involve multiple commissions. Please read the options disclosure document titled "Characteristics and Risks of Standardized Options." Member SIPC