Albatross Spread – An advanced Neutral Trading Strategy

Albatross Spread is an advanced options trading strategy used in neutral market conditions. There are multiple types of Albatross Spread mentioned here. Check this article to know everything about it.


About Albatross Spread

Also known as wide condor spread, Albatross spread is a neutral strategy involving four separate transactions.

Moreover, is a complicated strategy for beginners that creates a debit spread, unlike iron albatross, that creates a credit space.

It is the most suitable strategy when there is no move or small move in either direction.

The key advantage of albatross spread is the provision of a wide range of price moves. On the other hand, the key disadvantage of albatross is their potential profits as they are very limited.

It is one of the complex options in trading strategies. The creation of it is possible by call or puts that have essentially the same results.

The only difference in wide condor spread or albatross spread is that the underlying security stays in a wider range.


Open a Demat Account Now! –  Apply this Options Strategy

Fill Your Details Here
  1. Open Demat Account

Classification of Albatross Spread

  • A Neutral Trading Strategy
  • Involves with four transactions
  • Vertical Spread
  • Loose Neutral Outlook
  • Debit
  • Medium trading Experience Required

Trend for Traders

This trend can continue for weeks and months, causing trouble between stock traders and investors to profit under such circumstances.

However, it provides stability in price and gives investors many opportunities. It allows them to turn their time decay into a productive area that reduces risk exposure.

Option traders use several neutral strategies that include covered call, covered put, short straddle, short strangle, albatross spread, and more.


Find out other Neutral Option Trading Strategy here

Calendar StraddleCovered PutShort Straddle
Covered CallShort StrangleCall Ratio Spread
Butterfly SpreadIron Condor Spread

How to use Albatross Spread?

There are two methods of making an Albatross Spread. One approach is to use the tools solely what we call “Call Albatross Spread”. The other approach is to use the choices already added. We call it a “Put Albatross Spread”.

All Call and Put Albatross Spreads are tactics for neutral options that you can consider as the underlying supply holds within the risk area defined by the low strike rates. This way, the Albatross Spread structure is the same.

On the other hand, in Condor Spread, implementing this technique needs four legs, and the broker will position four orders.

You may both stand these orders together, which is simpler to do, or use legging tactics and put them at different times. To simplify, the “condor spread” can be used using either calls or puts.

There are multiple types of Albatross Spread Option Trading Strategies. Find them below.

Short Albatross Spread

It is an advanced options strategy that profits stock breaks at topside or downside. It is a short condor spread with a wider strike difference between two middle strike prices.

The advantages include maximum profit potential with a predictable and customizable feature. But on the downscale, a margin is required as it is a credit spread strategy.

As these options strategies are named after the wingspan of animals, other than albatross, the butterfly is also a neutral trading strategy.

Iron Albatross Spread

It is one of the most advanced and similar to other strategies spread and it involves with four transactions. It requires a high trading level and is, therefore, suitable for options traders with experience.

The advantage of this spread is the profitable range for a price on wider underlying security resulting in less loss.

Gut Iron Albatross Spread

This Neutral Trading Strategy is similar to iron albatross spread. However, it involves buying and selling calls and puts at four different exercise practices.

There are two types of gut iron albatross spread, that are named as, long gut iron albatross and short gut iron albatross.

Reverse Iron Albatross Spread

This options strategy is a complex volatile options strategy that provides maximum profit and limited maximum loss potential irrespective of the stock breakouts at upside or downside.

The advantages of this strategy are the available narrower breakeven range and are applicable by options traders who don’t use credit spreads.

The disadvantage of this strategy is the wider breakeven range than reverse iron condor spread.

Put Albatross Spread

This strategy involves only put options. It is established by buying one in-the-money-put, selling one at-the-money-put, selling one out-of-the-money-put, and finally buying an out-of-the-money-put.

Long Call Albatross Spread

This strategy involves positions in call options. Like long condor, it involves one debit and one credit call spread which combines in one strategy.

It is based on buying one call option at the lowest strike, selling one strike at a lower-middle strike, and selling one at an upper-middle strike with greater strike difference in second and third legs than between first or second legs.

Long Put Albatross Spread

Long put albatross spread specifically involves put options based on selling one put at lowest strike, buying one put at a lower-middle strike, buying one put at upper-middle strike, and selling one put at highest strike.

All these legs lay on the same underlying and have the same expiration month with the same difference between the first two and last two legs.


Find out more relevant Neutral Option Trading Strategy below

Condor SpreadCalendar Put SpreadIron Albatross Spread
Calendar Call SpreadShort GutCovered Call Collar
Put Ratio SpreadIron Butterfly SpreadCalendar Strangle

Profit & Loss Potential

The highest benefit available occurs when the price of the underlying asset is right between the options attacks.

In this scenario, the strike of those written in Leg B (INR 49) and the strike of those written in Leg D (INR 51) will have to differ respectively.

In case that occurs, the Legs C and D rights will expire worthlessly. Any sale in Leg B is going to be in the bank and bear responsibility, but those paid in Leg A are going to be worth more: hence the benefit.

A benefit will still be possible if the underlying security price falls marginally above that limit, so if it travels too far in any direction (i.e. beyond the upper break-even point or below the lower break-even point), the loss will be incurred.


Pros of Albatross Spread

  • It is one of the largest profitable neutral trading strategies.

Cons of Albatross Spread

  • It is possible that a trader can face the highest loss.
  • A trader can face the highest net debit.
  • A possibility of the lowest maximum profit is also possible.

Adjustments in Albatross Spread Before the Expiration

  • If the underlying asset has improved in pricing and if you see a continuous improvement then you can try buying back the short call options while keeping the long call on hold.
  • If the asset has dropped in terms of price and expected to behave so, then you can sell long call options with short call on hold. However, only the broker allows you to sell such options.
  • There are chances that the experienced traders may close out on either leg and then buy the underlying asset to make sure they settle in a delta neutral position.

Albatross Spread: Conclusion

The long Albatross spread might cover a wide range of strike prices compared to the Butterfly Spread, and in an interesting perspective.

Moreover, the complex neutral options in this trading strategy are named by the wing length. The albatross spread covers the widest spread while butterfly spread covers the smallest.

The strike difference makes this options strategy much complex. Due to this, it has been termed as a wide Condor spread in literature trade.


Open a Demat Account Now! –  Apply this Options Strategy

Fill Your Details Here
  1. Open Demat Account

Similar Topics on Options Trading

Introduction to Option Trading
Options Trading for Beginners
How to Start Options Trading?
Choose the Right Options Strategy
Become an Advanced Option Trader
NSE Option Chain
Nifty Option Chain
Open Interest Stock Option
Open Interest Index Option
Most Active Index Option
Most Active Stock Option
Put Call Ratio
Risk Reversal Option Strategy

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Get 90% Discount on Brokerage Now! Open Demat Account
×

Share your details & Become Sub Broker Now!

  1. Become Sub Broker

Offer valid for limited time.

×

Share your details & Open Demat A/C Now!

  1. Open Demat Account

Offer valid for limited time.

×

Share your details & Get IPO Allotment Now!

  1. Invest in IPO

Offer valid for limited time.

×

Share your details & Invest in PMS Now!

  1. Invest in PMS / PCG

Offer valid for limited time.