Definition
The term condor spread refers to an options strategy involving four calls with different strike prices and the same expiration date and underlying security. Condor spreads are considered a limited-risk trading strategy that allows investors to profit when the underlying security is considered non-volatile.
Explanation
A condor spread is a limited-risk, limited-profit, non-directional options strategy. Executing a condor involves the purchase of four calls, each with a different strike price, but having the same expiration date and underlying security. A net outflow of cash, or debit, is required to establish the position, which is typically constructed as follows:
Writing an in-the-money call option
Buying an in-the-money call option with a strike price that is lower than the in-the-money call option sold
Writing an out-of-the-money call option with a strike price that is higher than the in-the-money call option sold
Buying an out-of-the-money call option with a strike price that is higher than the out-of-the-money call option sold
The above trades constitute the four legs of a long condor spread. Maximum profit is achieved when the stock's price falls between the middle two strike prices at expiration. Maximum loss is limited to the initial net debit taken when establishing the position, and is achieved when the stock's price falls below the lowest strike price or above the highest strike price. Breakeven can occur when the stock's price at expiration is equal to the highest strike price of the long call minus the net premium, or below the strike price of the lowest long call plus the net premium.
Related Terms
- The term option cycle refers to three patterns that dictate when a commodity, currency, debt, index or equity option will expire. Rules established by the Chicago Board Options Exchange (CBOE) require each of these underlying assets to have four expiration months.
Moneyzine EditorSeptember 20th, 2023 
The term contract size refers to the deliverable quantity of a commodity or security named as the underlying asset in a futures or options contract. The deliverable quantity, and therefore the contract size, for futures and options contracts are standardized but vary according to the underlying asset.
Idil WoodallJanuary 12th, 2024
The term contingency order refers to trades that are only executed if one or more conditions are satisfied. Contingency orders can include conditions such as the price of a security or the execution of another order.Moneyzine EditorJanuary 12th, 2024
The term combination refers to an options strategy involving trades that take a position in both call and put options for the same underlying security. Option combinations allow investors to construct trades that balance risk and reward with their risk profile.Moneyzine EditorJanuary 11th, 2024
