Condor Options

Back on April 9, we published a bonus trade for our members that allowed them to participate in the rally that ensued, but with absolute downside protection.  We brought in a $0.20 credit upon opening the position, and you could sell it to close today for about $0.32, which means this trade returned $0.52, for a 28% return on capital risked.  Not too shabby.

The broken call condor was constructed like this:

+1 SPY May 141 call
-1 SPY May 142 call
-1 SPY May 144 call
+1 SPY May 147 call
for a net credit of $0.20

Since we took in a credit on this trade, there was literally no downside risk: if SPY fell to 130 or 120 or 0, we’d still keep the $0.20 credit.  A monster rally above 145 would’ve meant trouble, but was also relatively unlikely given prevailing market and economic woes.

As time progressed, the short 144/147 vertical decayed in value and is now nearly worthless, while the long 141/142 vertical became quite profitable.  We took more initial risk by taking in a credit and using nearer strikes, but this paid off when the SPYs moved back lower last week.