Condor Spread

The very center of PlayBird used to have a fine feathered centerfold, but then we...evolved.

The condor is the largest bird in North America, with the largest wing spread. Perhaps this is where a condor spread got its name in the world of options trading.

An option is when you predict that, in the future, a price will go up (calls) or down (puts). There are two kinds of options spreads: a long condor and a short condor. In a long condor, the investor hopes to profit from little to no movement of a security, while a short condor involves a lot of price movement and volatility. In both short and long scenarios, multiple options are purchased and sold at the same time. The goal is to reduce risk, but this can result in lower profits as well.

So here's what an investor would do in a long condor call spread after establishing four different strike prices (the price at which action to buy or sell takes place):

Buy a call with the lowest strike price.

Sell a call with the second lowest strike price.

Sell a call with the second highest strike price.

Buy a call with the highest strike price.

At the beginning, the stock price should be close to the middle of steps 2 and 3.

And here's how you would structure a short condor spread with four different strike prices:

Sell a call with the lowest strike price.

Buy a call with the second lowest strike price.

Buy a call with the second highest strike price.

Sell a call with the highest strike price.

The same scenarios would be followed for a long and short condor spread with puts. Keep in mind that each of these steps will involve transaction fees that could further eat into your profit.