Investment Type: Debit
Strike Prices: ITM for 1st bought leg, ATM (near the money) for both sold legs, OTM for 2nd bought leg.
Expiration Month: Same expiration months for all legs and should be current month
Composition: Buy lower strike Put + Sell middle strike Put + Sell middle higher strike Put + Buy higher Put
| Long Put Condor Profile Chart | ||
|
Long Put Condor is another popular strategy which is basically a variation of Long Put Butterfly. The strategy uses 4 different strike prices instead of 3. Condor has wider profitable range and more costly.
Major disadvantage with executing Condor strategies is that the strategy will eat up a lot of commissions and slippage costs (the difference between bid and ask spread)
| Example | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Entry:
Investment @ Entry = (Premium of lower strike Leg x No of Contracts x 100 Shares) + (Premium of middle strike Leg x No of Contracts x 100 Shares) + (Premium of middle higher strike Leg x No of Contracts x 100 Shares) + (Premium of higher strike Leg x No of Contracts x 100 Shares) = $10,950 + ($5,100) + ($1,800) + $600 = $4,650
Breakeven Point Down = lower strike + Net Debit = $30.00 + $1.55 = $31.55
Exit: Best Case Scenario:
Profit @ Exit = (Premium of higher strike Leg x No of Contracts x 100 Shares) + (Premium of middle higher strike Leg x No of Contracts x 100 Shares) + (Premium of middle strike Leg x No of Contracts x 100 Shares) + (Premium of lower strike Leg x No of Contracts x 100 Shares) – Investment @ Entry = $7,500 + $0 + $0 + $0 - $4,650 = $2,850
Return of Investment = Profit @ Exit / Investment @ Entry = 61%
Worst Case Scenario : Investment @ Entry
|