Long At-The-Money Butterfly/Condor
- A condor is like a "stretched out" butterfly with two different middle strikes rather than just one
- Can be a relatively inexpensive option strategy that has limited risk and limited profit potential
- The closer a butterfly is to expiration, the more it will react to changes in the stock price
- A strategy used by professional traders for years because of its protective characteristics
- For a long butterfly, you want the stock to stay near the middle strike
- Time decay (positive theta) is your friend
Long At-The-Money Time Spread
- Long back month call (put) and short front month call (put) with the same strike price
- Maximum loss is limited to the price of the time spread, but can be greater in certain index options
- This spread works best if the stock price stays right at the strike price
- Implied volatility can change at different rates in different expirations
- The position becomes more sensitive to changes in the stock price as expiration nears
Trading Range Unlimited Risk
Short Straddle / Short Strangle
- Short call and short put at same strike (straddle) or different strikes (strangle) at same expiration
- Unlimited risk to upside and downside (strike minus premium collected)
- Profit potential limited to the price of the straddle or strangle
- Break-even points are the strike plus and minus the value of the straddle, or high strike plus and lower strike minus the value of the strangle
- Short both calls and puts make this very short volatility (vega)
- Time decay (positive theta) is your friend
- Not for the squeamish or risk-averse
Put or Call Ratio Spread for Credit
- The most common ratio between short and long is 2:1
- Ratio spreads have unlimited risk – monitor your position carefully
- At expiration, greatest profit at the short strike price
- Because the position is net short options, there is an increased volatility risk
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