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Long Condor Spread with Puts

The Setup

  • Buy a put, strike price A
  • Sell a put, strike price B
  • Sell a put, strike price C
  • Buy a put, strike price D
  • Generally, the stock will be between strike price B and strike price C

NOTE: All options have the same expiration month.

Who Should Run It


When to Run It

You’re anticipating minimal movement on the stock within a specific time frame.

The Sweet Spot

You achieve maximum profit if the stock price is anywhere between strike B and strike C at expiration.

About the Security

Options are contracts which control underlying assets, oftentimes stock. It is possible to buy (own or long) or sell (“write” or short) an option to initiate a position. Options are traded through a broker, like TradeKing, who charges a commission when buying or selling option contracts.

Options: The Basics is a great place to start when learning about options. Before trading options carefully consider your objectives, the risks, transaction costs and fees.

The Strategy

You can think of put condor spread as simultaneously running an in-the-money bull (or short) put spread and an out-of-the-money bear (or long) put spread. Ideally, you want the short put spread to expire worthless, while the long put spread achieves its maximum value with strikes C and D in-the-money.

Typically, the stock will be halfway between strike B and strike C when you construct your spread. If the stock is not in the center at initiation, the strategy will be either bullish or bearish.

The distance between strikes A and B is usually the same as the distance between strikes C and D. However, the distance between strikes B and C may vary to give you a wider sweet spot (see Options Guy's Tips).

You want the stock price to end up somewhere between strike B and strike C at expiration. Condor spreads have a wider sweet spot than the butterflies. But (as always) there’s a tradeoff. In this case, it’s that your potential profit is lower.

Maximum Potential Profit

Potential profit is limited to strike D minus strike C minus the net debit paid.

Maximum Potential Loss

Risk is limited to the net debit paid to establish the condor.

Break-even at Expiration

There are two break-even points:

  • Strike A plus the net debit paid
  • Strike D minus the net debit paid

TradeKing Margin Requirements

After the trade is paid for, no additional margin is required.

As Time Goes By

For this strategy, time decay is your friend. Ideally, you want the options with strike A and strike B to expire worthless, and the options with strike C and strike D to retain their intrinsic values.

Implied Volatility

After the strategy is established, the effect of implied volatility depends on where the stock is relative to your strike prices.

If the stock is near or between strikes C and B, you want volatility to decrease. Your main concern is the two options you sold at those strikes. A decrease in implied volatility will cause those options to decrease in value, thereby increasing the overall value of the condor. In addition, you want the stock price to remain stable, and a decrease in implied volatility suggests that may be the case.

If the stock price is approaching or outside strike D or A, in general you want volatility to increase. An increase in volatility will increase the value of the option you own at the near-the-money strike, while having less effect on the short options at strikes C and B.

Options Guy's Tips

  • You may wish to consider ensuring that strike B and strike C are around one standard deviation away from the stock price at initiation. That will increase your probability of success. However, the further these strike prices are from the current stock price, the lower the potential profit will be from this strategy.
  • Some investors may wish to run this strategy using index options rather than options on individual stocks. That’s because historically, indexes have not been as volatile as individual stocks. Fluctuations in an index’s component stock prices tend to cancel one another out, lessening the volatility of the index as a whole.
  • As a general rule of thumb, you may wish to consider running this strategy approximately 30-45 days from expiration to take advantage of accelerating time decay as expiration approaches. Of course, this depends on the underlying stock and market conditions such as implied volatility.


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