What is a Condor Strategy?

A condor strategy is a non-directional options trading strategy that limits both gains and losses while seeking to profit from either low or high volatility. There are two types: the long condor and the short condor. Both types can be implemented using either calls or puts, but not both at the same time.

Long Condor

A long condor strategy is used when you expect the price of the underlying security to remain stable over a set period. This strategy involves using either four calls or four puts and is established for a net debit. Both the potential profit and maximum risk are capped. The maximum profit is achieved if the stock price is between the middle two strike prices at expiration. The maximum risk, which is equal to the net cost of the strategy, occurs if the stock price is above the highest strike price or below the lowest strike price at expiration.

Short Condor

A short condor strategy is used when you expect the price of the underlying security to move significantly, either up or down, within a specific time period. This strategy involves using either four calls or four puts and is established for a net credit. Both potential profit and maximum risk are limited. The maximum profit, which is the net premium received from the strategy, is realized if the stock price is above the highest strike price or below the lowest strike price at expiration. The maximum risk occurs if the stock price is between the middle two strike prices at expiration.

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Option trading entails significant risk and is not appropriate for all investors. Option investors can rapidly lose the entire value of their investment in a short period of time and incur permanent loss by expiration date. You need to complete an options trading application and get approval on eligible accounts. Please read the Characteristics and Risks of Standardized Options before trading options.