← Strategy LabLesson 38 · 4:57
Short condor
Summary
A short condor suits a view that XYZ breaks out of the $95 to $105 band in either direction. You collect $305 up front and keep it all if XYZ ends below $90 or above $110; you lose at most $195 if it ends between $95 and $105. You break even at $93.05 and $106.95.
Key terms
- short condor
- A long condor sold instead of bought, collecting money up front to bet that the stock breaks out of a band in either direction.
- net credit
- When a pair of trades brings cash in overall.
- pit
- The flat low middle of a last-day line, where a trade that bets on a move loses all it paid.
- breakout
- early exercise
- When the buyer of an option uses it before the last day, which can happen to a deep in-the-money call you sold.
- break-even
- The stock price on the last day where you neither make nor lose money: strike plus premium for a call, strike minus premium for a put.
Check yourself
Answer each question to see why the right answer is right.
1. What is the most you can lose on the lesson's short condor?
2. XYZ does not move and ends at $100. What is your result?
3. XYZ falls and ends at $90. What happens?
4. With nothing else changing, how does time affect you while XYZ sits at $100?
5. Why does the lesson warn you to watch the $90 call you sold?
Finished the video and the quiz? .