LONG PUT CONDOR
Strategy Details  
Strategy Type  Neutral on direction, but bearish on volatility 
# of legs  4 (Long 1 Lower Strike Put + Short 1 Lower Middle Strike Put + Short 1 Higher Middle Strike Put + Long 1 Higher Strike Put) 
Maximum Reward  Lower Middle Strike Price  Lower Strike Price  Net Premium Paid 
Maximum Risk  Limited to the extent of Net Premium Paid 
Lower Breakeven Price  Lower Strike Price + Net Premium Paid 
Upper Breakeven Price  Higher Strike Price  Net Premium Paid 
Payoff Calculation  Payoff of lower strike Long Put+ Payoff of lower middle strike Short Put + Payoff of higher middle strike Short Put + Payoff of higher strike Long Put 
Explanation of the Strategy
A Long Put Condor is a strategy wherein the trader would buy 1 lower strike Put, sell 1 lower middle strike Put, sell 1 higher middle strike Put, and buy 1 higher strike Put. Each of these options must belong to the same underlying instrument and must have the same expiration date. Usually, the lower strike and the lower middle strike Puts are ITM Puts, whereas the higher middle strike and the higher strike Puts are OTM Puts. At the time of initiating this strategy, the underlying price is usually somewhere between the two middle strikes. Usually, all the four options are equidistant from each other. However, this is not a hard and fast rule. Sometimes, to account for a wider maximum profit zone, traders prefer keeping a wider distance between the two middle strikes as compared to the distance between the outer strike and the corresponding middle strike.
A Long Put Condor is a direction neutral, range bound strategy. This strategy works best when the underlying price stays confined within the two middle strike price. That said, sometimes this strategy can take a slight bullish or bearish tilt. For instance, at the time of initiation, if the two middle Puts are chosen such that the underlying price is below the two middle strikes, the strategy would be slightly bullish, wherein the trader would want the underlying price to rise and enter the zone of the two middle strikes. On the other hand, if the middle Puts are chosen such that the underlying price is above the two middle strikes, the strategy would be slightly bearish, wherein the trader would want the underlying price to fall and enter the zone of the two middle strikes. This is because maximum profit occurs when the underlying is somewhere within the range of the two middle strikes by expiration.
A Long Put Condor is quite similar to a Long Put Butterfly. However, there is an important difference. Recollect that in a Long Put Butterfly, the two middle options that are sold have the same strike price and both these options are ATM at the time of initiation. On the other hand, in a Long Put Condor, the two middle options that are sold have different strike prices. Because of this, a Long Put Condor will have a wider maximum profit range, unlike a Long Put Butterfly in which the maximum profit range is restricted to just one point. As a result, an advantage of a Long Put Condor over a Long Put Butterfly is that the former will have a greater probability of earning maximum profit than the latter. That said, this comes at a price:the maximum potential profit for a Long Put Condor is quite smaller than that for a Long Put Butterfly, all else equal.
Because a Long Put Condor is a range bound strategy that benefits the most when the underlying price consolidates within the confines of the two middle strikes, it follows that the trader would want the volatility to decrease going forward, as this would increase the odds of the underlying staying within the two middle strikes. Hence, it can be said that a Long Put Condor is a range bound strategy with a bearish outlook on volatility. Also, as this is a range bound strategy, time decay is beneficial. Meanwhile, just like a Long Put Butterfly, a Long Put Condor is a net debit strategy.
This strategy has two breakeven points. As long as the underlying price is between the two breakeven points, the strategy is profitable. As said earlier, maximum profit under this strategy is limited and occurs when the underlying price is between the two middle strikes. On the other hand, the position becomes unprofitable when the underlying price either falls below the lower breakeven point or rises above the upper breakeven point. Meanwhile, maximum loss is limited to the extent of net premium paid and occurs when the underlying price is either below the lower strike or above the higher strike.
Benefits of the Strategy

Compared to a Butterfly, this strategy has a wider maximum profit zone

Maximum loss is limited no matter how higher or lower the price of the underlying goes

If strikes are chosen well, this strategy can have a favourable risk to reward ratio

Time decay benefits the position as long as it is profitable

This strategy has a greater probability for success than a Long Put Butterfly in terms of achieving the maximum profit potential
Drawbacks of the Strategy

The wider the maximum profit zone chosen, the higher will be the cost and the potential loss

An unexpected surge in volatility could be detrimental to the success of the trade

Compared to a Butterfly, maximum profit is smaller in absolute terms, all else equal

Because this strategy involves selling two options, it will require a greater margin in your trading account at the time of initiation

A potential to lose the entire net debit amount, in case the underlying falls below the lower strike or rises above the higher strike
Strategy Suggestions

See that your view on the underlying is range bound

See that your view on volatility is bearish i.e. you expect volatility to decline going forward

Ensure that the strikes are evenly placed. In other words, see that the distance between the lower and the lower middle strike is equal to that between the higher middle and the higher strike

However, sometimes, traders keep the distance between the lower middle and the higher middle strikes slightly wider than the other two to account for a larger maximum profit zone

The spread between the middle two strikes will be a tradeoff between the maximum profit zone and the cost/potential loss of the strategy

The wider the spread between the middle strikes, the wider will be the maximum profit zone and the potential profit but so would be the cost as well as the potential loss, and vice versa

Because this is a range bound strategy that benefits from declining volatility, ensure that you do not give yourself too much time to go wrong

Ensure there is sufficient liquidity in the underlying that is being chosen to initiate this strategy
Option Greeks for Long Put Condor
Greek  Notes 
Delta 
Delta is at or near zero at initiation. It tends to peak out above zero when the underlying price is below the lower strike and bottom out below zero when the underlying price is above the higher strike. That said, while Delta does become nonzero as the underlying price moves, it does not deviate much from zero. As such, changes in the price of the underlying do not have much impact on this strategy because of the way it is structured. 
Gamma 
Gamma is negative and is at its lowest point in between the two middle strikes. As the underlying price starts moving away from the midpoint of the two middle strikes and approaches either the lower or the higher strike, Gamma tends to move into positive before peaking out around these extreme strikes. 
Vega 
Vega is negative and is at its lowest point between the two middle strikes, meaning the negative impact of a rise in volatility is the highest around the middle strikes. Volatility hurts as long as the position in profitable. That said, Vega turns positive when the position becomes unprofitable, meaning a rise in volatility now starts helping the position. 
Theta 
Theta is positive and is at its highest point between the two middle strikes, meaning time decay is most helpful around the middle strikes. Time decay benefits the position as long as it is profitable. That said, Theta turns negative when the position becomes unprofitable, meaning time decay now starts hurting the position. 
Payoff of Long Put Condor
The above is the payoff chart of a Long Put Condor. Notice that the maximum profit potential under this strategy occurs when the underlying price is within the range of the two middle strike price. On the other hand, notice that the maximum possible loss occurs when the underlying price either falls below the lower strike price or rises above the higher strike price. Both profits and losses under this strategy are limited. Meanwhile, this strategy is in a profitable position as long as the underlying price is within the two breakeven points and is unprofitable when the underlying price goes outside either of the two breakeven point.
Example of Long Put Condor
Let us say that Mr. ABC has decided to execute a Long Put Condor strategy on Nifty. The details of the strategy are as below:

Strike price of OTM long Put = 8800

Strike price of OTM short Put = 9000

Strike price of ITM shortPut = 9200

Strike price of ITM long Put = 9400

LongPut premium (lower strike) = ₹60

Short Put premium (lower middle strike) = ₹120

Short Put premium (higher middle strike) = ₹225

LongPut premium (higher strike) = ₹355

Net Debit = ₹70 (60 + 355  120  225)

Net Debit (in value terms) = ₹5,250 (70 * 75)

Lower Breakeven point = 8870 (8800 + 70)

Upper Breakeven point = 9330 (9400  70)

Maximum reward = ₹9,750 ((9000  8800  70) * 75)

Maximum risk = ₹5,250
Now, let us assume a few scenarios in terms of where Nifty would be on the expiration date and the impact this would have on the profitability of the trade.
Underlying price at Expiration  Net Profit/Loss  Notes 
7000  Loss of ₹5,250  Payoff = [Maximum of (88007000,0)60]+[120Maximum of (90007000,0)] + [225Maximum of (92007000,0)] + [Maximum of (94007000,0)355]. As the underlying price at expiration is below the lower breakeven point, the trader will incur a loss 
8000  Loss of ₹5,250  Payoff = [Maximum of (88008000,0)60]+[120Maximum of (90008000,0)] + [225Maximum of (92008000,0)] + [Maximum of (94008000,0)355]. As the underlying price at expiration is below the lower breakeven point, the trader will incur a loss 
8800  Loss of ₹5,250  Payoff = [Maximum of (88008800,0)60]+[120Maximum of (90008800,0)] + [225Maximum of (92008800,0)] + [Maximum of (94008800,0)355]. As the underlying price at expiration is below the lower breakeven point, the trader will incur a loss 
8835  Loss of ₹2,625  Payoff = [Maximum of (88008835,0)60]+[120Maximum of (90008835,0)] + [225Maximum of (92008835,0)] + [Maximum of (94008835,0)355]. As the underlying price at expiration is below the lower breakeven point, the trader will incur a loss 
8870  No profit, No loss  Payoff = [Maximum of (88008870,0)60]+[120Maximum of (90008870,0)] + [225Maximum of (92008870,0)] + [Maximum of (94008870,0)355]. As the underlying price at expiration is equal to the lower breakeven point, the trader will neither make a profit nor incur a loss 
8900  Profit of ₹2,250  Payoff = [Maximum of (88008900,0)60]+[120Maximum of (90008900,0)] + [225Maximum of (92008900,0)] + [Maximum of (94008900,0)355]. As the underlying price at expiration is between the two breakeven points, the trader will make a profit 
9000  Profit of ₹9,750  Payoff = [Maximum of (88009000,0)60]+[120Maximum of (90009000,0)] + [225Maximum of (92009000,0)] + [Maximum of (94009000,0)355]. As the underlying price at expiration is between the two breakeven points, the trader will make a profit 
9100  Profit of ₹9,750  Payoff = [Maximum of (88009100,0)60]+[120Maximum of (90009100,0)] + [225Maximum of (92009100,0)] + [Maximum of (94009100,0)355]. As the underlying price at expiration is between the two breakeven points, the trader will make a profit 
9200  Profit of ₹9,750  Payoff = [Maximum of (88009200,0)60]+[120Maximum of (90009200,0)] + [225Maximum of (92009200,0)] + [Maximum of (94009200,0)355]. As the underlying price at expiration is between the two breakeven points, the trader will make a profit 
9300  Profit of ₹2,250  Payoff = [Maximum of (88009300,0)60]+[120Maximum of (90009300,0)] + [225Maximum of (92009300,0)] + [Maximum of (94009300,0)355]. As the underlying price at expiration is between the two breakeven points, the trader will make a profit 
9330  No profit, No loss  Payoff = [Maximum of (88009330,0)60]+[120Maximum of (90009330,0)] + [225Maximum of (92009330,0)] + [Maximum of (94009330,0)355]. As the underlying price at expiration is equal to the upper breakeven point, the trader will neither make a profit nor incur a loss 
9365  Loss of ₹2,625  Payoff = [Maximum of (88009365,0)60]+[120Maximum of (90009365,0)] + [225Maximum of (92009365,0)] + [Maximum of (94009365,0)355]. As the underlying price at expiration is above the upper breakeven point, the trader will incur a loss 
9400  Loss of ₹5,250  Payoff = [Maximum of (88009400,0)60]+[120Maximum of (90009400,0)] + [225Maximum of (92009400,0)] + [Maximum of (94009400,0)355]. As the underlying price at expiration is above the upper breakeven point, the trader will incur a loss 
10000  Loss of ₹5,250  Payoff = [Maximum of (880010000,0)60]+[120Maximum of (900010000,0)] + [225Maximum of (920010000,0)] + [Maximum of (940010000,0)355]. As the underlying price at expiration is above the upper breakeven point, the trader will incur a loss 
12000  Loss of ₹5,250  Payoff = [Maximum of (880012000,0)60]+[120Maximum of (900012000,0)] + [225Maximum of (920012000,0)] + [Maximum of (940012000,0)355]. As the underlying price at expiration is above the upper breakeven point, the trader will incur a loss 
Observe above that the trader suffers the highest possible loss of ₹5,250 when Nifty is either below the lower strike of 8800 or above the upper strike of 9400. Meanwhile, notice that the maximum possible profit under this strategy is ₹9,750 and occurs when Nifty stays range bound between the two middle strikes of 9000 and 9200. The strategy stays profitable as long as Nifty is inside the two breakeven points of 8870 and 9330 and becomes unprofitable when Nifty moves outside one of the two breakeven points. Meanwhile, notice that for this strategy, the risk/reward ratio stands at 1.85.
SHORT PUT CONDOR
Strategy Details  
Strategy Type  Neutral on direction, but bullish on volatility 
# of legs  4 (Short 1 Lower Strike Put + Long 1 Lower Middle Strike Put + Long 1 Higher Middle Strike Put + Short 1 Higher Strike Put) 
Maximum Reward  Limited to the extent of Net Premium Received 
Maximum Risk  Lower Middle Strike Price  Lower Strike Price  Net Premium Received 
Lower Breakeven Price  Lower Strike Price + Net Premium Received 
Upper Breakeven Price  Higher Strike Price  Net Premium Received 
Payoff Calculation  Payoff of lower strike Short Put+ Payoff of lower middle strike Long Put + Payoff of higher middle strike Long Put + Payoff of higher strike Short Put 
Explanation of the Strategy
A Short Put Condor is an option strategy wherein the trader would sell a lower strike Put, buy a lower middle strike Put, buy a higher middle strike Put, and sell a higher strike Put. Each of these options must belong to the same underlying and must have the same expiration. Generally, the lower strike and the lower middle strike Put are both OTM, whereas the higher middle strike and the higher strike Put are both ITM. Usually, but not always, all the four options are equidistant from each other.
Unlike a Long Put Condor, which is a net debit strategy, a Short Put Condor is a net credit strategy. This strategy achieves its maximum profit potential when the underlying price either falls below the lower strike or rises above the higher strike. As such, volatility is of utmost importance to the success of this strategy. The direction in which the underlying price moves does not matter. What is however important is that the underlying price must swing in either direction (up or down). Hence, it can be said that this strategy is neutral on direction, but bullish on volatility.
Unlike a Short Put Butterfly, in which maximum loss occurs at one point only (the middle strike), a Short Put Condor has a wider maximum loss zone (because the two middle strikes are different). If the underlying price gets stuck between the two middle strikes, the trader will suffer maximum loss under this strategy. Hence, when executing this strategy, the trader must have conviction that the underlying will trend up or down and that volatility will increase going forward. Meanwhile, this strategy has two breakeven points, lower and upper. The strategy is unprofitable when the underlying price is within the range of the two breakeven points and is profitable when the underlying price moves outside one of the two breakeven points.
Just like a Short Put Butterfly, a Short Put Condor also has an unattractive risk to reward profile as the risk is greater than the potential reward. As a result, this strategy must preferably be executed by professional option traders only.
Benefits of the Strategy

This is a net credit strategy, meaning there is no cash outflow at the time of initiation

This strategy works well during times when volatility is expected to rise

Maximum loss under this strategy is limited and is known beforehand
Drawbacks of the Strategy

Compared to a Butterfly, this strategy has a wider maximum loss zone

The risk to reward ratio under this strategy is quite unattractive

Time decay hurts the position as long as it is unprofitable

An unexpected contraction in volatility could be detrimental to the success of the trade

Because this strategy involves selling two options, it will require a greater margin in your trading account at the time of initiation
Strategy Suggestions

See that your view on the underlying is direction neutral

See that your view on volatility is bullish i.e. you expect volatility to increase sharply going forward

Ensure that the strikes are evenly placed. In other words, see that the distance between the lower and the lower middle strike is equal to that between the higher middle and the higher strike

However, sometimes, traders keep the distance between the lower middle and the higher middle strikes slightly narrower than the other two to account for a smaller maximum loss zone

The spread between the middle two strikes will be a tradeoff between the maximum lossmaking zone and the potential reward of the strategy

The wider the spread between the middle strikes, the wider will be the maximum lossmaking zone and the maximum possible loss, but so would the maximum possible profit, and vice versa

Because this is a direction neutral strategy that benefits from rising volatility, ensure that you give yourself sufficient time to go right

Ensure there is sufficient liquidity in the underlying that is being chosen to initiate this strategy
Option Greeks for Short Put Condor
Greek  Notes 
Delta 
Delta is at or near zero at initiation. It tends to bottom out below zero when the underlying price is below the lower strike and peak out above zero when the underlying price is above the higher strike. That said, while Delta does become nonzero as the underlying price moves, it does not deviate much from zero. As such, changes in the price of the underlying do not have much impact on this strategy because of the way it is structured. 
Gamma 
Gamma is positive and is at its highest point in between the two middle strikes. As the underlying price moves away from the midpoint of the two middle strike and approaches either the lower or the higher strike, Gamma tends to move into negative before bottoming out around these extreme strikes. 
Vega 
Vega is positive and is at its highest point between the two middle strikes, meaning the positive impact of a rise in volatility is the greatestaround the middle strikes. Volatility benefits as long as the position in unprofitable. That said, Vega turns negative when the position becomes profitable, meaning a rise in volatility now starts hurting the position. 
Theta 
Theta is negative and is at its lowest point between the two middle strikes, meaning time decay hurts the most around the middle strikes. Time decay hurts the position as long as it is unprofitable. That said, Theta turns positive when the position becomes profitable, meaning time decay now starts benefiting the position. 
Payoff of Short Put Condor
The above is the payoff chart of a Short Put Condor strategy. Observe that maximum profit under this strategy occurs when the underlying price either falls below the lower strike or rises above the higher strike. On the other hand, see that maximum loss occurs when the underlying price is within the range of the two middle strikes. As the underlying price at initiation is somewhere within the range of the two middle strikes, the trader would want volatility to pick up going forward, so that the probability of the strategy to achieve its maximum profit potential increases.
Example of Short Put Condor
Let us say that Mr. ABC has decided to execute a Short Put Condor strategy on Nifty. The details of the strategy are as below:

Strike price of OTM short Put = 8800

Strike price of OTM long Put = 9000

Strike price of ITM longPut = 9200

Strike price of ITM short Put = 9400

ShortPut premium (lower strike) = ₹60

Long Put premium (lower middle strike) = ₹120

Long Put premium (higher middle strike) = ₹225

ShortPut premium (higher strike) = ₹355

Net Credit = ₹70 (60 + 355  120  225)

Net Credit (in value terms) = ₹5,250 (70 * 75)

Lower Breakeven point = 8870 (8800 + 70)

Upper Breakeven point = 9330 (9400  70)

Maximum reward = ₹5,250

Maximum risk = ₹9,750 ((9000  8800  70) * 75)
Now, let us assume a few scenarios in terms of where Nifty would be on the expiration date and the impact this would have on the profitability of the trade.
Underlying price at Expiration  Net Profit/Loss  Notes 
7000  Profit of ₹5,250  Payoff = [60Maximum of (88007000,0)]+[Maximum of (90007000,0)120] + [Maximum of (92007000,0)225] + [355Maximum of (94007000,0)]. As the underlying price at expiration is below the lower breakeven point, the trader will make a profit 
8000  Profit of ₹5,250  Payoff = [60Maximum of (88008000,0)]+[Maximum of (90008000,0)120] + [Maximum of (92008000,0)225] + [355Maximum of (94008000,0)]. As the underlying price at expiration is below the lower breakeven point, the trader will make a profit 
8800  Profit of ₹5,250  Payoff = [60Maximum of (88008800,0)]+[Maximum of (90008800,0)120] + [Maximum of (92008800,0)225] + [355Maximum of (94008800,0)]. As the underlying price at expiration is below the lower breakeven point, the trader will make a profit 
8835  Profit of ₹2,625  Payoff = [60Maximum of (88008835,0)]+[Maximum of (90008835,0)120] + [Maximum of (92008835,0)225] + [355Maximum of (94008835,0)]. As the underlying price at expiration is below the lower breakeven point, the trader will make a profit 
8870  No profit, No loss  Payoff = [60Maximum of (88008870,0)]+[Maximum of (90008870,0)120] + [Maximum of (92008870,0)225] + [355Maximum of (94008870,0)]. As the underlying price at expiration is equal to the lower breakeven point, the trader will neither make a profit nor incur a loss 
8900  Loss of ₹2,250  Payoff = [60Maximum of (88008900,0)]+[Maximum of (90008900,0)120] + [Maximum of (92008900,0)225] + [355Maximum of (94008900,0)]. As the underlying price at expiration is between the two breakeven points, the trader will incur a loss 
9000  Loss of ₹9,750  Payoff = [60Maximum of (88009000,0)]+[Maximum of (90009000,0)120] + [Maximum of (92009000,0)225] + [355Maximum of (94009000,0)]. As the underlying price at expiration is between the two breakeven points, the trader will incur a loss 
9100  Loss of ₹9,750  Payoff = [60Maximum of (88009100,0)]+[Maximum of (90009100,0)120] + [Maximum of (92009100,0)225] + [355Maximum of (94009100,0)]. As the underlying price at expiration is between the two breakeven points, the trader will incur a loss 
9200  Loss of ₹9,750  Payoff = [60Maximum of (88009200,0)]+[Maximum of (90009200,0)120] + [Maximum of (92009200,0)225] + [355Maximum of (94009200,0)]. As the underlying price at expiration is between the two breakeven points, the trader will incur a loss 
9300  Loss of ₹2,250  Payoff = [60Maximum of (88009300,0)]+[Maximum of (90009300,0)120] + [Maximum of (92009300,0)225] + [355Maximum of (94009300,0)]. As the underlying price at expiration is between the two breakeven points, the trader will incur a loss 
9330  No profit, No loss  Payoff = [60Maximum of (88009330,0)]+[Maximum of (90009330,0)120] + [Maximum of (92009330,0)225] + [355Maximum of (94009330,0)]. As the underlying price at expiration is equal to the upper breakeven point, the trader will neither make a profit nor incur a loss 
9365  Profit of ₹2,625  Payoff = [60Maximum of (88009365,0)]+[Maximum of (90009365,0)120] + [Maximum of (92009365,0)225] + [355Maximum of (94009365,0)]. As the underlying price at expiration is above the upper breakeven point, the trader will make a profit 
9400  Profit of ₹5,250  Payoff = [60Maximum of (88009400,0)]+[Maximum of (90009400,0)120] + [Maximum of (92009400,0)225] + [355Maximum of (94009400,0)]. As the underlying price at expiration is above the upper breakeven point, the trader will make a profit 
10000  Profit of ₹5,250  Payoff = [60Maximum of (880010000,0)]+[Maximum of (900010000,0)120] + [Maximum of (920010000,0)225] + [355Maximum of (940010000,0)]. As the underlying price at expiration is above the upper breakeven point, the trader will make a profit 
12000  Profit of ₹5,250  Payoff = [60Maximum of (880012000,0)]+[Maximum of (900012000,0)120] + [Maximum of (920012000,0)225] + [355Maximum of (940012000,0)]. As the underlying price at expiration is above the upper breakeven point, the trader will make a profit 
In the above table, see that maximum profit under this strategy occurs at extremes, i.e. when Nifty moves either below the lower strike of 8800 or above the higher strike of 9400. On the other hand, maximum loss under this strategy occurs when Nifty gets stuck between the two middle strikes of 9000 and 9200. Hence, the trader who initiates this strategy would want Nifty to move much outside one of these middle strikes, irrespective of direction. Meanwhile, for this strategy, the two breakeven points are at 8870 and 9330. The position is lossmaking as long as Nifty is trading between these two points and is profitable when Nifty is trading outside one of these two points.
Next Chapter
Comments & Discussions in
FYERS Community