Getting paid for a market that goes nowhere

It sells a call above the index and a put below it. Those are the two promises: the index will not finish the week above the one or below the other. Then it buys a cheaper call further above and a cheaper put further below. Those are the reinsurance. Whatever the index does, the promise and its insurance on the same side can never cost more than the distance between them.

The money is time. Every day that passes with the index inside the range, the promises are worth less to whoever bought them, and the strategy can buy them back for less than it sold them. In practice it does not wait for the end of the week. It closes once it has earned about half of what it collected, because the last half carries most of the risk and very little of the reward.

Two of the strategies on this site sell the same promises without the insurance. They collect more, and if the index moves far enough they lose more than they ever collected, with no ceiling. The condor collects less, and the most it can lose on one lot is a figure printed on the screen before the order goes in. That difference is not a detail. It is the difference between a bad week and a bad year.

The exits make the full loss rare rather than impossible. If the index approaches one side, that side is closed early. If the day's losses reach a small fixed share of the account, trading stops for the day. Nothing is held overnight, so a gap at the open cannot hit a position that is not there. And on days when the market is jumpy, it trades half the usual size rather than sitting out.

It collects less than the open-ended versions. In exchange, the worst week is a number you have already seen.

Ask an options trader what to do when a condor is threatened and most will say roll it: move the threatened side further away, or out to next week, to buy time. It is the standard adjustment and it often works. It also, now and then, turns a small capped loss into a large one, because rolling adds risk to a trade that has already been proven wrong, and the cap only meant something while nothing was added.

The robot does not roll. It closes the threatened side, takes the loss, and waits for the next clean entry. A person can be trusted to roll well under pressure some of the time. A rule can be trusted to close every time, and the cap is only real if it does.

To test an options strategy you need the prices options actually traded at, week by week, for years. Share prices are easy to come by. Option prices are not, and we do not hold them yet. Without them there is no backtest, and without a backtest nothing passes the quality bar, so no options strategy on this site is listed. The guide and this article exist so that you understand the idea in the meantime, and so that when a test does exist you can read it with the right questions in mind.