A long condor seeks to profit from low volatility and little to no movement in the underlying asset. A short condor seeks to profit from high volatility and a sizable move in the underlying asset in either direction. The purpose of a condor strategy is to reduce risk, but that comes with reduced profit potential and the costs associated with trading several options legs.
Condor spreads are similar to butterfly spreads because they profit from the same conditions in the underlying asset. The major difference is the maximum profit zone, or sweet spot, for a condor is much wider than that for a butterfly, although the trade-off is a lower profit potential.
Both strategies use four options, either all calls or all puts. For example, a long condor using calls is the same as running both an in-the-money long call, or bull call spread , and an out-of-the-money short call, or bear call spread.
Unlike a long butterfly spread , the two sub-strategies have four strike prices, instead of three. Maximum profit is achieved when the short call spread expires worthless, while the underlying asset closes at or above the higher strike price in the long call spread.
At inception, the underlying asset should be close to the middle of strike B and strike C. If it is not at the middle, then the strategy takes on a slightly bullish or bearish bent.
Note that for a long butterfly, strikes B and C would be the same. The profit curve is the same as for the long condor with calls. The profit curve is the same as for the short condor with calls. The goal is to profit from the projected low volatility and neutral price action in the underlying asset.
Maximum profit is realized when the underlying asset's price falls between the two middle strikes at expiration minus cost to implement the strategy and commissions. Two breakeven points BEP : BEP1, where the cost to implement is added to the lowest strike price, and BEP2, where the cost to implement is subtracted from the highest strike price.
The goal is to profit from the projected high volatility and the underlying asset's price moving beyond the highest or lowest strikes. Maximum risk is the difference between middle strike prices at expiration minus the cost to implement, in this case a net CREDIT, and commissions.
Two breakeven points BEP - BEP1, where the cost to implement is added to the lowest strike price, and BEP2, where the cost to implement is subtracted from the highest strike price.
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Iron Butterfly Option Also called Ironfly, it is a combination of four different kinds of option contracts, which together make one bull Call spread and bear Put spread. Lot Size Definition: Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. A simple example of lot size is: when we buy a pack of six chocolates, it refers to buying a single lot of chocolate.
Description: In the stock market, lot size refers to the number of shares you buy in one transaction. In options trading, lot size represents the total number of contracts contained in one derivative security. The theory of lot size allows financial markets to regulate price quotes. It basically refers to the size of the trade that you make in the financial market. With the regulation of prices, investors are always aware of exactly how many units they are buying of an individual contract and can easily assess what is the price they are paying for each unit.
If no lot size is defined, there will be no standardisation of price and valuing and trading of option contracts would be bulky and consuming.
A smaller lot of production is an important part of many lean manufacturing strategies. Inventory and development directly affect the lot size. There are other factors too, which are less evident but equally essential. A small lot size causes reduction in variability in the system and ensures smooth production. It enhances quality, simplifies scheduling, reduces inventory, and encourages continuous improvement.
In the derivatives market, the lot size of futures and options contracts is determined by the stock exchange from time to time.
Definition: Iron Condor is a non-directional option strategy, whereby an option trader combines a Bull Put spread and Bear Call spread to generate profit. Close Menu. Log in. Log out. Premium Services Our Analysts. Sponsored by.
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