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To Bill Hardy:
A Long condor is a strategy where you buy calls in an external spread:
strike prices 100 & 300 and write calls in an internal spread: strike 140 &
260. You do this when you think the security will fall inside the internal
spread. You get wicked when the expiration price is outside the internal
spread.
A short condor is on the same logic but inverted. You do it when you think
the security will be outside the internal spread. In this case you write
call of 100 & 300 and buy 140 & 260. All the numbers are for illustration
only.
To Guy,
Some points I forgot and other people mentioned but could be important for
you:
1. Check if you deal with American or European options. If the expiration
can occur other than at a fix date (American) you should be ready for this.
We don't have this here, so I cannot be of great help in that case.
2. Playing volatility (or clean arbitrage) is one of the nicest thing, if
you have the cash. You could write expensive options on the market and cover
them by buying/selling the correct futures. I guess, commissions, slippage
and price spreads should be considered, but if the options are really
expensive, it is worthwhile and with no risk.
3. Options on indexes is much better that options on stocks. It is much more
liquid and the base security is not (usually) going down or up 10-20% after
a sudden event. Remember the "unlimited loss" factor.
4. Take in consideration the cost of rolling over from one expiration time
to the next when you don't close the position. If you play "at the money"
near expiration, the spreads are becoming wide because of the nervousness of
the players.
I hope this helps and Good trading to all.
Moshe Shalom
Israel
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