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Condor spread

A strategy combining a bull spread and a bear spread, constructed using call options or put options on the same underlying with the same maturity at four different exercise prices. A long condor refers to the purchase of two options of the same type, one with a lower exercise price and the other with a higher exercise price, and to the simultaneous sale of two other options of the same type as the purchased options, with intermediate exercise prices between the lower exercise price and the higher exercise price of the two purchased options. A short condor refers to the sale of two options of the same type, one with a lower exercise price and the other with a higher exercise price, and to the simultaneous purchase of two other options of the same type as the options sold, with intermediate exercise prices between the lower exercise price and the higher exercise price of the two options sold.

(1) In practice, in a long position, one of the options purchased is generally in the money and the other is out of the money, and one of the options sold is slightly less in the money while the other is slightly less out of the money. In a short position, one of the options sold is in the money and the other is out of the money, and one of the options purchased is slightly less in the money while the other is slightly less out of the money. (2) A condor strategy is constructed by combining call options (call condor), or put options (put condor). In both cases, the strategy results in a net outflow to the buyer and a net inflow to the seller. (3) The condor is similar to the butterfly, the difference being that the two options sold (or purchased, in a short position) have different exercise prices. (4) A condor spread may also involve futures contracts, for example in a long position, by combining the purchase of a front month contract, the sale of a deferred month contract, the sale of an even further month contract and the purchase of a contract with an even longer term to maturity than the others. The expiration months are not necessarily consecutive and the spreads between them can be different.

Translations

Synonyms and variations

  • Call condor
  • Condor
  • Put condor

See also