Which is Better, Strangle or Condor?

First Solar announced earnings last night.  The aftermarket trading pushed it down 16% right down to where I sold the put at 115.  This morning I bought in the call for 0.70.  By the end of the day I will have to decide to buy in the put or let it ride and see where it goes.

What if instead of selling the combination, a call at 155 and a put at 115, I had  also bought the straddle?  How would that trade have turned out?

We can think of this as two spreads, a bull spread where we are long the 135 call and short the 155 call. And a put spread where we are long the 135 put and short the 115 put.

Here is a table of what we’ve got:

dates                         2/23/2009        2/25/2009
underlying  FSLR          135                         115
short    155 call          $5.30                     $0.75
long      135 call          $9                            $3.10
long      135 put          $9                             $26
short    115 put          $6                             $9

Total                      $6.70                       $19.35

Put Spread

The 135 put cost $9 and the 115 put cost $6.  So the cost of the put spread would be $3.  This morning, when FSLR reached 115, the 115 put cost $9 and the 135 put was worth $26.  So the position was worth $17.   This is a gain of $14.

Call Spread

When the position was put on Monday, the 135 call cost $9 and the 155 call cost $5.30  So to buy the 135 call and sell the 155 call would have cost $3.70  At the open, when FSLR was at 115, what would this spread have been worth?  0.75 for the 155 and $3.10 for the 135 call.  So the call spread would be worth $2.35  This is a loss of $1.35

So overall, the position could have been closed out for  $17 + $2.35 or about $19.35.  Given the initial cost of $3 + $3.70 = $6.70  This is a return of  $12.65 / $6.70 or 189%

Of course, this was a big move in the stock.  How far would the stock have to move so that we break even?  If the stock had not moved at all, and we had lost only the two days of time decay, we would be very close to where we would have bought this position.