The Condor Spread
Example: XYZ stock is trading at $45 in September
Outlook: You are neutral on XYZ stock for the short term.
Possible strategy: Construct the Condor Spread to take advantage of short term time decay.
Buy one Oct 35 strike call at $11.00
Sell one Oct 40 strike call at $7.00
Sell one Oct 50 strike call at $2.00
Buy one Oct 55 strike call at $1.00
Net Debit $3.00 ($300)
*All values shown are at the time of expiration. Commissions and other trading fees not included.
- Maximum Profit = Lower middle - ITM strike - Net Debit
- Maximum Profit = 40 - 35 - $3.00 = $2.00
- Maximum Loss = Net Debit ($3.00)
- Breakevens = Higher strike Call - Net Debit
55 - 3 = 52
Lower strike Call + Net Debit
35 + 3 = 38
In Summary: The Condor Spread with calls is actually the combination of a Bull Call Spread and Bear Call Spread. It is a limited risk and limited profit strategy. It is most profitable if XYZ stock stabilizes anywhere between the two middle short strike calls.