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Long Condor, Short Condor |
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Long Condor
The condor is basically a butterfly stretched over four strike prices instead of three. It takes the body of the butterfly (two options at the middle strike) and splits it between two middle strikes rather than just one. It can also be viewed as a combination of a bull and bear call spread.
If a trader’s feeling toward a stock is largely neutral because it's been trading in a narrow range, the long condor can be a great strategy to use. Like the butterfly, the condor is a limited risk, limited reward strategy that profits in sluggish markets. For example:
Long 70 call, Short 75 call
Short 80 call, Long 85 call
The above combination of options creates the long condor. The position is considered "long" because it requires a net cash outlay to initiate.
Maximum profit is achieved at expiration with the stock between 75 and 80. At $75, the 75, 80, and 85 calls would expire worthless and the 70 calls would be worth $500. Thus, the trader would achieve his maximum profit of $400 ($500 - $100 initial debit). Between 75 and 80, the loss on the short 75 calls is more than offset by the 70 calls. Since the 80 and 85 calls would again expire worthless, the value at expiration is the same as the value of the 70/75 bull call spread ($5). At any price above $85 or below $70, the trader would experience the maximum loss of $100.
Short Condor
Like the long butterfly, the short condor is a limited risk, limited reward strategy that can be effective when the trader’s feels a stock is about to move one way or the other, but is not sure which. The position is considered "short" because the trader collects a credit for making the trade.
For example: the trader buys one 75 call and one 80 call. At the same time, he sells one 70 call and one 85 call as a hedge in case the market moved against him. This combination of options creates the short condor. (The same position can be established using puts.)
The maximum profit is limited to the $100 credit received when this trade was initiated. At expiration, if the stock is above $85 or below $70, the trader will keep the $100. The $400 maximum loss for this position will occur between $75 and $80 where the profit on the 75 call is more than offset by the loss on the short 70 call. Meanwhile, the 80 and 85 calls would expire worthless.
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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