Description:
This is a sideways strategy consisting of a long position in an OTM put option with a strike price K1 , a short position in an OTM put option with a higher strike price K2 , a short position in an ITM put option with a strike price K3 , and a long position in an ITM put option with a higher strike price K4 . All strikes are equidistant: K4 − K3 = K3 − K2 = K2 − K1 = κ . This is a relatively low cost net debit trade. The trader’s outlook is neutral. This is a capital gain strategy.
Understanding the Long Put Condor
A long put condor consists of four different put options on the same underlying asset with the same expiration date. This setup involves buying one out-of-the-money (OTM) put at the lowest strike (Strike A), selling one OTM put at a slightly higher strike (Strike B), selling another in-the-money (ITM) put at an even higher strike (Strike C), and finally buying one more ITM put at the highest strike (Strike D). Typically, the stock price lies between Strike B and Strike C when the strategy is initiated. This is a debit strategy, meaning the net cost to establish the position comes from the difference between the premiums paid for the long puts and the premiums received from the short puts.
The goal of the long put condor is to profit from minimal price movement in the underlying asset. The strategy combines a bull put spread (OTM) and a bear put spread (ITM), aiming for the underlying asset to stay within a specific range. If the stock price remains between Strike B and Strike C at expiration, the strategy achieves its maximum profit. The long put condor is typically used in neutral market conditions where the trader expects little to no movement in the underlying asset.