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A condor is a limited-risk, non-directional options trading strategy consisting of four options at four different strike prices. [1] [2] The buyer of a condor earns a profit if the underlying is between or near the inner two strikes at expiry, but has a limited loss if the underlying is near or outside the outer two strikes at expiry. [2]
These latter two are a short risk reversal position. So: Underlying − risk reversal = Collar. The premium income from selling the call reduces the cost of purchasing the put. The amount saved depends on the strike price of the two options. Most commonly, the two strikes are roughly equal distances from the current price.
A risk-reversal is an option position that consists of selling (that is, being short) an out of the money put and buying (i.e. being long) an out of the money call, both options expiring on the same expiration date. In this strategy, the investor will first form their market view on a stock or an index; if that view is bullish they will want to ...
Simple payoff diagrams of the four types of ladder. In finance, a ladder, also known as a Christmas tree, is a combination of three options of the same type (all calls or all puts) at three different strike prices. [1] A long ladder is used by traders who expect low volatility, while a short ladder is used by traders who expect high volatility.
Risk reversal - simulates the motion of an underlying so sometimes these are referred as synthetic long or synthetic short positions depending on which position you are shorting. Collar - buy the underlying and then simultaneous buying of a put option below current price (floor) and selling a call option above the current price (cap).
In finance, a butterfly (or simply fly) is a limited risk, non-directional options strategy that is designed to have a high probability of earning a limited profit when the future volatility of the underlying asset is expected to be lower (when long the butterfly) or less lower (when short the butterfly) than that asset's current implied ...
Risk reversals are generally quoted as x% delta risk reversal and essentially is Long x% delta call, and short x% delta put. Butterfly, on the other hand, is a strategy consisting of: −y% delta fly which mean Long y% delta call, Long y% delta put, short one ATM call and short one ATM put (small hat shape).
The subtraction done one way corresponds to a long-box spread; done the other way it yields a short box-spread. The pay-off for the long box-spread will be the difference between the two strike prices, and the profit will be the amount by which the discounted payoff exceeds the net premium. For parity, the profit should be zero.