Condor Spread

A Condor uses all options of the same type (all calls or all puts), while an Iron Condor uses both calls and puts (a bull put spread combined with a bear call spread). Both have the same payoff profile when strikes are identical, but execution and sometimes pricing differ.

Choose a Condor when you're confident the price will stay within a range but not at a specific point. The Condor has a wider profit zone (between two middle strikes) while the Butterfly has maximum profit at a single price point.

The maximum loss on a Long Condor is limited to the net debit paid. This occurs only if the underlying price closes below the lowest strike or above the highest strike at expiration.

Condors are intermediate-level strategies. They have four legs which makes them more complex to execute and manage than two-leg strategies. However, their defined risk makes them relatively safe to learn compared to unlimited-risk strategies.

Enter when: 1) You expect range-bound trading, 2) IV is moderate (20-50% IV Rank), 3) There are no upcoming catalysts, 4) You have 30-45 DTE to allow time for profit. Post-earnings periods are often good entry points.

Lower Breakeven = Lowest Strike + Net Debit. Upper Breakeven = Highest Strike - Net Debit. Example: Strikes 7300/7400/7600/7700, net debit £50. Lower BE = 7300 + 50 = 7350. Upper BE = 7700 - 50 = 7650.

Both have identical payoffs at expiration if strikes are the same. Choose based on: 1) Liquidity - use whichever has tighter spreads, 2) Pricing - check if one is slightly cheaper due to skew, 3) Slight directional bias - call condor for slightly bullish, put condor for slightly bearish.

Close at 50-75% of maximum profit. Don't hold to expiration trying to capture the last 25-50%. The remaining profit isn't worth the gamma risk in the final days, and early exit frees capital for new opportunities.

Gamma increases dramatically near expiration, especially if price is near the middle strikes. Small price moves cause large P&L swings. Theta accelerates but so does risk. Exit by 7-10 DTE to avoid these complications.

Yes, several adjustments are possible: 1) Roll the tested side to wider strikes, 2) Roll the entire position to a later expiry, 3) Delta hedge with stock/futures, 4) Convert to a different structure (butterfly, vertical). Evaluate adjustment cost vs. simply closing.

Optimal width depends on your probability vs. profit targets. Use expected move (from straddle price or implied volatility) as baseline. Inner strikes at ~1 standard deviation move, outer strikes at ~1.5-2 standard deviations. Backtest different widths to find optimal for your edge.

At upper breakeven: Delta is significantly negative (position loses as price rises), Gamma is negative (delta becomes more negative), Theta may be near zero or slightly negative (time no longer helps), Vega typically still negative. The position is now at its most vulnerable point.

Systematic approach: 1) Define entry rules (IV rank range, DTE window, delta conditions), 2) Fixed position sizing (% of portfolio), 3) Defined exit rules (profit %, loss %, time), 4) No discretionary overrides, 5) Track performance metrics, 6) Periodically optimize parameters using walk-forward analysis.

In typical negative skew (puts more expensive than calls), lower strike options have higher IV. For a call condor, the long lowest call (cheap due to lower IV) and short second call benefit. For put condor, you pay more for the long highest put. Call condors often have slight structural advantage in negatively skewed markets.

If you hold Condors on multiple correlated underlyings, a market-wide move hurts all positions simultaneously. Diversify across sectors and uncorrelated assets. Monitor portfolio Greeks (aggregate delta, gamma, vega). Consider reducing position size when correlation increases (market stress environments).