Bearish options strategy that involves buying and selling four put options with different strike prices to profit from a narrow trading range or a slight downward price move in the underlying security.
Alias
Long Condor spread with Puts
Description
A long put condor spread is a bearish options trading strategy that involves buying a put option with a low strike price, selling a put option with a higher strike price, buying a put option with an even higher strike price, and selling a put option with an even higher strike price. All of the options have the same expiration date and are typically used in a neutral market outlook. The strategy is designed to profit from a narrow trading range or a slight downward price move in the underlying security. It is called a “condor” because the profit potential and risk profile of the position resemble the shape of a condor’s wings.
The trader profits from the strategy if the underlying security remains within a certain price range at expiration. If the price of the security is above the strike price of the highest put option, the trader will experience a loss. If the price of the security is below the strike price of the lowest put option, the trader will also experience a loss. However, if the price of the security is within the range defined by the strike prices of the options, the trader will earn a profit. The maximum profit is limited and is equal to the difference between the strike prices of the middle two options minus the net debit paid to enter the position. The maximum loss is unlimited and is equal to the difference between the strike prices of the outer two options plus the net debit paid to enter the position.
Breakeven
Leg 1 plus the net debit paid
Leg 4 minus the net debit paid
Sweet Spot
The stock price is in between Leg 2 and Leg 3.
Max Profit
Limited and is equal to the difference between the strike prices of the middle two options minus the net debit paid.
Max Loss
Limited to the net debit paid to get into this Condor Strategy
