Hi there, I was reading this months Options Traders mag and it talks about condors. I plugged one into my ToS software to see what one would be like with just a week and a half left till exp, and I wonder if I'm looking at something wrong here. Does one "sell" condors? When I analyzed this on RUT: Sell 700 Call Buy 720 Call Buy 740 Call Sell 750 Call It gave me a return of 166%. When I analyzed a buy order on RUT: Buy 690 Call Sell 700 Call Sell 750 Call Buy 760 call it gave me a ROI of 31%. When buying the condor, it needs to be within the two short strikes. So, that would make it between 700 and 750. There's a 74% chance it'll do that. Now...when selling a condor, does it need to land between the two long strikes? Or still the short strikes? Either way, this seems appealing, and I'm sure I've got to be missing something here as this seems so tasty. Thanks for helping clarify this for me. Chris
Hi Chris If you buy a regular condor, as in your second example, you want the price of the underlying (u) to be inside your short strikes at expiry for max profit. If you sell a condor, as in your first example, you want the price to be outside your short strikes at expiry for max profit. The opposite holds true for an iron condor (IC, one put and one call vertical credit spread)), i.e when you sell an IC you want u to stay between short strikes at expiry for max profitability. Best daddy's boy
Awesome. Thanks! I always knew and traded IC's, but never really dove into regular condors. I appreciate the info!
The all-call/put condors are exactly the same as iron condors, i.e. they are synthetic equivalents. Selling an iron condor is the same as selling the body in an all-call/put condor, and buying an iron condor is the same as buying the body in an all-call/put condor.
Err...Just so I understand it correctly as in my example above...if I want the underlying to land outside my short strikes, I'd want RUT to be either under 700 or above 750, right? Just needed some clarity Thanks again
The first example is equivalent to buying an iron condor so you want the index to be outside the wing strikes. The second example is equivalent to selling an iron condor, so you want the index to be between the body (middle) strikes.
One more q.... Is there any follow up action I would take when one of the short calls would be closing in the money? Sorry for all the Q's, I just want to make sure I understand correctly.
Since you are using ToS you can use the Analyze screen to see where your risk graph. You can click on the blue dot from the Trade screen, or go to the Analyze screen and select Add Simulated Trades. Then click Risk Profile to see the profit/loss graph. Use the "plot lines" pull-down menu and select +1@expiration to see what happens at expiration.