Strategies · Library · Options
§2.49Volatility
Short put condor
Sell puts at the lowest and highest strikes and buy puts at the two middle strikes, evenly spaced, for a small credit. Wins if the price lands outside the whole span; loss is limited.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Expects a decisive move out of a range, either way.
- Entry and exit
- Sell a low put, buy the next two puts, sell the highest put, same expiry, for a credit. Hold to expiry or close early after a breakout.
- Sizing
- 1 short, 1 long, 1 long, 1 short across four put strikes
How it fails
- Reward is limited to the credit and is kept only outside the outer strikes
- Loss peaks at the spacing less the credit if the price ends between the middle strikes
- Waiting costs decay on the two long puts
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
A Call that a currency pair or index leaves its recent trading range by a date matches this view; paper only.
Needs options; the payoff cannot be formed from long-only positions.
Filed under the volatility card
Hold less after a month of high volatility and more after a calm one. The paper found this raised return per unit of risk, because volatile spells are not paid for with higher returns.
A paper plan from this card holds 5 to 63 days, stops at 2.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.49, p. 36 of the SSRN version. Described in our words. Volatility is ARCANE’s filing, not the book’s.