Short Put Condor is identical to the Short Call Condor except that it uses puts
instead of calls. It is the opposite of a Long Put 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 Put Condor involves a low strike short put, a lower middle
out-of-the-money long put, a higher middle in-the-money long put, and a higher
in-the-money short put. The resulting position is profitable in the event of a
big move by the stock.
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 want a capital gain. Use when you anticipate increased
volatility in a stock price, in either direction.
is trading at $52.87 on May 14, 2011.
August 2011 45 strike put for $1.88.
August 2011 50 strike put at $3.73.
August 2011 55 strike put at $6.33.
August 2011 60 strike put for $9.60.
credit: premiums sold minus premiums bought = $1.42.
benefit of this trade is that you do not have to put money down to possibly
profit from a rangebound stock, with your risk capped.
risk is the difference between adjacent strikes minus the net credit. The
reward is the net credit you receive.
in 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
You have to wait to see a sizable movement in the stock.
stem a loss, you can unravel the trade before expiration.
out the spread by selling the options you bought and buying back the options