condors are identical to short butterflies, with the exception that the two
middle bought options have different strikes. The Short Call Condor is another volatility
strategy and is the opposite of a Long Call Condor, which is a rangebound
strategy. Short condors are not particularly popular because even though they
produce a net credit, they offer very small returns compared to straddles and
strangles, with only slightly less risk.
Short Call Condor involves a low strike short call, a lower middle
in-the-money long call, a higher middle out-of-the-money long call, and a
higher out-of-the-money short call. The resulting position yields a position
that is profitable in the event of a big move by the stock. Again, the problem
is that the reward is seriously capped and is typically dwarfed by the
potential risk if the stock fails to move.
this strategy when you anticipate a significant increase in the volatility of a
stock, in either direction, for a capital gain.
is trading at $52.87 on May 14, 2011.
August 2011 45 strike call for $10.16.
August 2011 50 strike call at $7.05.
August 2011 55 strike call at $4.70.
August 2011 60 strike call for $3.02.
credit: premiums sold minus premiums bought: $1.43.
benefit is that, for no capital outlay, you can get profit from a rangebound
stock with capped risk.
risk is the difference between adjacent strikes minus the net credit. The
reward is the net credit you receive.
between adjacent strikes minus net credit.
even up: highest strike minus net credit.
even down: lowest strike plus net credit.
unless the stock moves outside of the outer strikes.
Of Time Decay
because you have to wait for a lot of movement in the price of the stock.
stem a loss, unravel the trade by selling the options and buying back the
options you sold.
out the position by buying back the options sold and selling the options