Condors and Butterflies
The “wing spread” family is a set of option strategies that is very popular,
particularly among experienced traders. These strategies make it possible
for speculators to accomplish something they could not possibly do by just
trading stocks: They provide a means to profit from a truly neutral market
in a security. Stocks that don’t move one iota can earn profits month after
month for income-generating traders who trade these strategies.
These types of spreads have a lot of moving parts and can be intimidating
to newcomers. At their heart, though, they are rather straightforward break-
even analysis trades that require little complex math to maintain. A simple
at-expiration diagram reveals in black and white the range in which the
underlying stock must remain in order to have a profitable position.
However, applying the greeks and some of the mathematics discussed in
previous chapters can help a trader understand these strategies on a deeper
level and maximize the chance of success. This chapter will discuss condors
and butterflies and how to put them into action most effectively.