A long condor spread is a neutral strategy that can be used when the underlying stock or ETF is trading in a narrow range and you expect little movement in the underlying.
It includes four different strike prices with the same expiration month and the following format: Long condors differ from long butterflies in that you can achieve maximum profitability over a range of prices, rather than a single price point. The trade-off is a lower potential reward. A long condor is the most common of the four-legged option strategies.
It is a mostly neutral strategy that can be used when the underlying stock or ETF is trading in a narrow range. A condor spread is always established with the exact same quantity of contracts on all four legs and it can be composed of either calls or puts.
Typically, the underlying stock will be halfway between the two middle strike prices when you set up the strategy. To visualize it, think of it as a butterfly that has been extended with four strike prices. A condor is often compared to the more well-known three-legged butterfly strategy. Like the butterfly, its maximum gain, maximum loss, and breakeven points are all known at the point of order entry. However the condor differs from the butterfly's single price point for maximum gain as its structure allows for a maximum gain to occur over a range of prices.
With this structure, it essentially allows more room for error when trying to achieve maximum profitability. The give-up, however, is that the maximum gain potential is less, and the maximum loss potential is greater than a similarly structured butterfly. While still less popular than the butterfly, retail interest for this strategy has grown as option commissions have declined.
With the introduction of multi-leg option order entry screens, at Schwab you actually get a discount on commissions when you enter multi-legged strategies such as spreads, straddles, butterflies, condors, etc.
When you believe a stock will remain very stable, a butterfly may be your best strategy, but when you are more uncertain, the condor is probably a better choice. The condor spread's market price is a debit of 4. To illustrate how these profit and loss zones are calculated, see below for some sample prices at expiration. XYZ at 55 or below at expiration: Net loss of 4. XYZ at 60 at expiration: XYZ at 65 at expiration: A long condor spread can be created using either calls or puts with very similar general characteristics.
While a long condor is generally a neutral strategy, you can put a very slight bullish or bearish bias on it, depending upon whether you use above the money ABTM , around the money RTM or below the money BTM calls or puts.
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Multiple-leg options strategies will involve multiple commissions. Covered calls provide downside protection only to the extent of the premium received and limit upside potential to the strike price plus premium received. For the sake of simplicity, the examples in this presentation do not take into consideration commissions and other transaction fees, tax considerations, or margin requirements, which are factors that may significantly affect the economic consequences of strategies displayed.
Please contact a tax advisor for the tax implications involved in these strategies. Spread trading must be done in a margin account. When there is more than one possible way to pair available options in your Account, Schwab has the discretion to determine spread pairings. Schwab may pair options in a manner that does not produce the lowest possible margin requirements.
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You are here Home Options. Key Points A long condor spread is a neutral strategy that can be used when the underlying stock or ETF is trading in a narrow range and you expect little movement in the underlying.
We explore how to create and how to give a bullish or bearish tilt to long condors. How does it differ from a butterfly? Limited risk with limited profit potential Long condor spread: Profit and loss at expiration. Leave this field blank. Talk trading with a Schwab specialist anytime. Call M-F, 8: Important Disclosures Options carry a high level of risk and are not suitable for all investors.More...