Long Condor Spread w/Calls

The Strategy

You can think of a long condor spread with calls as simultaneously running an in-the-money long call spread and an out-of-the-money short call spread. Ideally, you want the short call spread to expire worthless, while the long call spread achieves its maximum value with strikes A and B 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 below).

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.

The Setup

• Buy a call, strike price A
• Sell a call, strike price B
• Sell a call, strike price C
• Buy a call, 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

Veterans and higher

Break-even at Expiration

There are two break-even points:

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

The Sweet Spot

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

Maximum Potential Profit

Potential profit is limited to strike B minus strike A minus the net debit paid.

Maximum Potential Loss

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

Margin Requirement

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 C and strike D to expire worthless, and the options with strike A and strike B 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 B and C, 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 A or D, 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 B and C.