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Short Condor
The short condor is a neutral strategy similar to the short butterfly. It is a limited risk, limited profit trading strategy that is structured to earn a profit when the underlying stock is perceived to be making a sharp move in either direction.
Short Condor Construction 
Buy 1 ITM Call Sell 1 ITM Call (Lower Strike) Buy 1 OTM Call Sell 1 OTM Call (Higher Strike) 
Using calls, the options trader can setup a short condor by combining a bear call spread and a bull call spread. The trader enters a short call condor by buying a lower strike inthemoney call, selling an even lower striking inthemoney call, buying a higher strike outofthemoney call and selling another even higher striking outofthemoney call. A total of 4 legs are involved in this trading strategy and a net credit is received on entering the trade.
Limited Profit Potential
The maximum possible profit for a short condor is equal to the initial credit received upon entering the trade. It happens when the underlying stock price on expiration date is at or below the lowest strike price and also occurs when the stock price is at or above the highest strike price of all the options involved.
The formula for calculating maximum profit is given below:
 Max Profit = Net Premium Received – Commissions Paid
 Max Profit Achieved When Price of Underlying = Strike Price of Higher Strike Short Call
Limited Risk
Maximum loss is suffered when the underlying stock price falls between the 2 middle strikes at expiration. It can be derived that the maximum loss is equal to the difference in strike prices of the 2 lower striking calls less the initial credit taken to enter the trade.
The formula for calculating maximum loss is given below:
 Max Loss = Strike Price of Lower Strike Long Call – Strike Price of Lower Strike Short Call – Net Premium Received + Commissions Paid
 Max Loss Occurs When Price of Underlying is in between the Strike Prices of the 2 Long Calls
Breakeven Point(s)
There are 2 breakeven points for the short condor position. The breakeven points can be calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Highest Strike Short Call – Net Premium Paid
 Lower Breakeven Point = Strike Price of Lowest Strike Short Call + Net Premium Paid
Example
Suppose XYZ stock is trading at $45 in June. An options trader executes a short condor by selling a JUL 35 call for $1100, buying a JUL 40 call for $700, buying another JUL 50 call for $200 and selling another JUL 55 call for $100. A net credit of $300 is received on entering the trade.

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To further see why $300 is the maximum possible profit, lets examine what happens when the stock price falls to $35 or rise to $55 on expiration.
At $35, all the options expire worthless, so the initial credit taken of $300 is his maximum profit.
At $55, the short JUL 55 call expires worthless while the profit from the long JUL 40 call (worth $1500) and the long JUL 50 call (worth $500) is used to offset the short JUL 35 call worth $2000 . Thus, the short condor trader still earns the maximum profit that is equal to the $300 initial credit taken when entering the trade.
On the flip side, if XYZ stock is still trading at $45 on expiration in July, only the JUL 35 call and the JUL 40 call expire in the money. With his long JUL 40 call worth $500 and the initial credit of $300 received to offset the short JUL 35 call valued at $1000, there is still a net loss of $200. This is the maximum possible loss and is suffered when the underlying stock price at expiration is anywhere between $40 and $50.
Note: While we have covered the use of this strategy with reference to stock options, the short condor is equally applicable using ETF options, index options as well as options on futures.
Commissions
Commission charges can make a significant impact to overall profit or loss when implementing option spreads strategies. Their effect is even more pronounced for the short condor as there are 4 legs involved in this trade compared to simpler strategies like the vertical spreads which have only 2 legs.
If you make multilegged options trades frequently, you should check out the brokerage firm OptionsHouse.com where they charge a low fee of only $0.15 per contract (+$4.95 per trade).
Similar Strategies
The following strategies are similar to the short condor in that they are also high volatility strategies that have limited profit potential and limited risk.
Iron Condors
The iron condor is a limited risk, nondirectional option trading strategy that is designed to have a large probability of earning a small limited profit when the underlying security is perceived to have low volatility. The iron condor strategy can also be visualized as a combination of a bull put spread and a bear call spread.
Iron Condor Construction 
Sell 1 OTM Put Buy 1 OTM Put (Lower Strike) Sell 1 OTM Call Buy 1 OTM Call (Higher Strike) 
Using options expiring on the same expiration month, the option trader creates an iron condor by selling a lower strike outofthemoney put, buying an even lower strike outofthemoney put, selling a higher strike outofthemoney call and buying another even higher strike outofthemoney call. This results in a net credit to put on the trade.
Limited Profit
Maximum gain for the iron condor strategy is equal to the net credit received when entering the trade. Maximum profit is attained when the underlying stock price at expiration is between the strikes of the call and put sold. At this price, all the options expire worthless.
The formula for calculating maximum profit is given below:
 Max Profit = Net Premium Received – Commissions Paid
 Max Profit Achieved When Price of Underlying is in between Strike Prices of the Short Put and the Short Call
Limited Risk
Maximum loss for the iron condor spread is also limited but significantly higher than the maximum profit. It occurs when the stock price falls at or below the lower strike of the put purchased or rise above or equal to the higher strike of the call purchased. In either situation, maximum loss is equal to the difference in strike between the calls (or puts) minus the net credit received when entering the trade.
The formula for calculating maximum loss is given below:
 Max Loss = Strike Price of Long Call – Strike Price of Short Call – Net Premium Received + Commissions Paid
 Max Loss Occurs When Price of Underlying >= Strike Price of Long Call OR Price of Underlying
Breakeven Point(s)
There are 2 breakeven points for the iron condor position. The breakeven points can be calculated using the following formulae.
 Upper Breakeven Point = Strike Price of Short Call + Net Premium Received
 Lower Breakeven Point = Strike Price of Short Put – Net Premium Received
Example
Suppose XYZ stock is trading at $45 in June. An options trader executes an iron condor by buying a JUL 35 put for $50, writing a JUL 40 put for $100, writing another JUL 50 call for $100 and buying another JUL 55 call for $50. The net credit received when entering the trade is $100, which is also his maximum possible profit.
On expiration in July, XYZ stock is still trading at $45. All the 4 options expire worthless and the options trader gets to keep the entire credit received as profit. This is also his maximum possible profit.
If XYZ stock is instead trading at $35 on expiration, all the options except the JUL 40 put sold expire worthless. The JUL 40 put has an intrinsic value of $500. This option has to be bought back to exit the trade. Thus, subtracting his initial $100 credit received, the options trader suffers his maximum possible loss of $400. This maximum loss situation also occurs if the stock price had gone up to $55 instead.
To further see why $400 is the maximum possible loss, lets examine what happens when the stock price falls to $30 on expiration. At this price, both the JUL 35 put and the JUL 40 put options expire inthemoney. The long JUL 35 put has an intrinsic value of $500 while the short JUL 40 put is worth $1000. Selling the long put for $500, he still need $500 to buy back the short put. Subtracting the initial credit of $100 received, his loss is still $400.
Note: While we have covered the use of this strategy with reference to stock options, the iron condor is equally applicable using ETF options, index options as well as options on futures.
Commissions
Commission charges can make a significant impact to overall profit or loss when implementing option spreads strategies. Their effect is even more pronounced for the iron condor as there are 4 legs involved in this trade compared to simpler strategies like the vertical spreads which have only 2 legs.
If you make multilegged options trades frequently, you should check out the brokerage firm OptionsHouse.com where they charge a low fee of only $0.15 per contract (+$4.95 per trade).
Similar Strategies
The following strategies are similar to the iron condor in that they are also low volatility strategies that have limited profit potential and limited risk.
Condor Spread
What Is a Condor Spread?
A condor spread is a nondirectional options strategy that limits both gains and losses while seeking to profit from either low or high volatility. There are two types of condor spreads. A long condor seeks to profit from low volatility and little to no movement in the underlying asset. A short condor seeks to profit from high volatility and a sizable move in the underlying asset in either direction.
Understanding Condor Spreads
The purpose of a condor strategy is to reduce risk, but that comes with reduced profit potential and the costs associated with trading several options legs. Condor spreads are similar to butterfly spreads because they profit from the same conditions in the underlying asset. The major difference is the maximum profit zone, or sweet spot, for a condor is much wider than that for a butterfly, although the tradeoff is a lower profit potential. Both strategies use four options, either all calls or all puts.
As a combination strategy, a condor involves multiple options, with identical expiration dates, purchased and/or sold at the same time. For example, a long condor using calls is the same as running both an inthemoney long call, or bull call spread, and an outofthemoney short call, or bear call spread. Unlike a long butterfly spread, the two substrategies have four strike prices, instead of three. Maximum profit is achieved when the short call spread expires worthless, while the underlying asset closes at or above the higher strike price in the long call spread.
Key Takeaways
 A condor spread is a nondirectional options strategy that limits both gains and losses while seeking to profit from either low or high volatility.
 A long condor seeks to profit from low volatility and little to no movement in the underlying asset while a short condor seeks to profit from high volatility and a large movement in the underlying asset in either direction.
 A condor spread is a combination strategy that involves multiple options purchased and/or sold at the same time.
Types of Condor Spreads
1. Long Condor with Calls
This results in a net DEBIT to account.
 Buy a call with strike price A (the lowest strike):
 Sell a call with strike price B (the second lowest):
 Sell a call with strike price C (the second highest)
 Buy a call with strike price D (the highest strike)
At inception, the underlying asset should be close to the middle of strike B and strike C. If it is not at the middle, then the strategy takes on a slightly bullish or bearish bent. Note that for a long butterfly, strikes B and C would be the same.
2. Long Condor with Puts
This results in a net DEBIT to account.
 Buy a put with strike price A
 Sell a put with strike price B
 Sell a put with strike price C
 Buy a put with strike price D
The profit curve is the same as for the long condor with calls.
3. Short Condor with Calls
This results in a net CREDIT to account.
 Sell a call with strike price A (the lowest strike)
 Buy a call with strike price B (the second lowest)
 Buy a call with strike price C (the second highest)
 Sell a call with strike price D (the highest strike)
4. Short Condor with Puts
This results in a net CREDIT to account.
 Sell a put with strike price A (the lowest strike)
 Buy a put with strike price B (the second lowest)
 Buy a put with strike price C (the second highest)
 Sell a put with strike price D (the highest strike)
The profit curve is the same as for the short condor with calls.
Example of Long Condor Spread with Calls
The goal is to profit from the projected low volatility and neutral price action in the underlying asset. Maximum profit is realized when the underlying asset’s price falls between the two middle strikes at expiration minus cost to implement the strategy and commissions. Maximum risk is the cost of implementing the strategy, in this case a net DEBIT, plus commissions. Two breakeven points (BEP): BEP1, where the cost to implement is added to the lowest strike price, and BEP2, where the cost to implement is subtracted from the highest strike price.
 Buy 1 ABC 45 call at 6.00 resulting in a DEBIT of $6.00
 Sell 1 ABC 50 call at 2.50 resulting in a CREDIT of $2.50
 Sell 1 ABC 55 call at 1.50 resulting in a CREDIT of $1.50
 Buy 1 ABC 60 call at 0.45 resulting in a DEBIT of $0.45
 Net DEBIT = ($2.45)
 Maximum Profit = $5 – $2.45 = $2.55 less commissions.
 Maximum Risk = $2.45 plus commissions.
Example of Short Condor Spread with Puts
The goal is to profit from the projected high volatility and the underlying asset’s price moving beyond the highest or lowest strikes. Maximum profit is the net CREDIT received from implementing the strategy minus any commissions. Maximum risk is the difference between middle strike prices at expiration minus the cost to implement, in this case a net CREDIT, and commissions. Two breakeven points (BEP) – BEP1, where the cost to implement is added to the lowest strike price, and BEP2, where the cost to implement is subtracted from the highest strike price.

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