Albatross Spread
The albatross spread is a complex options trading strategy that involves four separate transactions. It's usually created using call options, but it can also be created by using puts for essentially the same results. It's a neutral strategy, which means it's designed to generate a return when a security remains stable in price.
Due to the complexities of the strategy it isn't recommended for beginners, and we would suggest that you only consider it if you have a fair level of experience when it comes to options trading.
Key Points
- Neutral Strategy
- Not Suitable for Beginners
- Four Transactions (buying and writing calls at different strikes)
- Can also use Puts
- Debit Spread (upfront cost)
- Medium/High Trading Level Required
- Also Known as Wide Condor Spread
Basic Introduction
The albatross spread is really just a condor spread using a significantly wider strike difference between the options written. Indeed, it's often referred to simply as the wide condor spread by many options traders and experts on the subject. We felt it was useful to include a page on the albatross spread on OptionsTrading.org though, in case any of our readers come across the term and want further details. However, whereas we usually provide full details of all the options trading strategies we cover on this site, we feel this is unnecessary in this instance.
Creating an albatross spread is basically the same as creating a condor spread, but you just need to widen the difference between the strikes used in the options written. The maximum profit is made in the same way, and the formulas for calculating the potential profits, losses, and break even points are exactly the same.
The main difference is that the albatross spread, or wide condor spread, can profit from the price of the underlying security staying in a wider range. This essentially increases the chances of making a profit. However, the albatross spread will cost more to put on and the potential profits will be lower. Therefore, you should only use it when you think that the price of the underlying security might fluctuate somewhat.
For full details of how to create the albatross spread and the various relevant calculations, please refer to the following page: Condor Spread.