A long call condor spread consists of purchasing one call at a lower strike, selling two calls at middle strikes, and purchasing one call at a higher strike. In a condor, the outside strikes are referred to as the wings and the two short options located at the middle strikes are referred to as the body. A condor is a limited-risk/limited-reward strategy in which you can take advantage of a range-bound market (long condor) or an increase in volatility (short condor), with a relatively low margin requirement. Like a butterfly, a condor gets its name from the birdlike shape of its profit and loss graph at expiration. This chapter will cover a long condor and then a short condor. It will describe a condor from the perspective of a long call, long put, short call, and short put and then address how it is similar to a butterfly and its assignment risk.
A condor spread is a four-legged option spread consisting of all calls or all puts in which each leg has the same expiration date but different strike prices. All four options have equally spaced exercise prices and expire at the same time. A long condor spread is a strategy designed to profit from a trading range, with limited risk. A short condor spread is a strategy designed to profit from volatility, with limited risk. A condor is similar to a butterfly, covered in Chapter 15, except that a condor has two middle exercise prices instead of one. You can use the long condor strategy when you project ...