Condor Spread

A condor spread is a non-directional options strategy with two varieties. 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 large movement in the underlying asset in either direction.

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.

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.

As a combination strategy, a condor involves multiple options purchased and/or sold at the same time.  A long condor using calls is the same as running both an in-the-money long call or bull call spread and an out-of-the-money short call, or bear call spread. Unlike a long butterfly spread, the two sub-strategies have four strike prices, not just 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. 

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.

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.

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)

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.