Broken-Wing Condor: A Skip-Strike Income Spread

Key Takeaways

• A broken wing condor widens one wing so risk is concentrated on a single side of the trade.
• The skipped strike usually lets you enter for a net credit instead of a debit.
• You carry no loss in the protected direction but larger loss in the unprotected one.
• It suits a neutral-to-slightly-directional view where you want income with a one-sided cushion.

What It Is

A standard condor uses four options of the same type, with equal distances between the strikes, to profit from price staying inside a range. A broken wing condor keeps four legs but "skips" a strike on one side, making that outer wing wider than the other.

The result is an unbalanced, or skip-strike, condor. By moving one protective leg farther out, you reduce the debit you pay or flip the trade into a credit. The cost of that benefit is a fatter potential loss on the wider-wing side.

The Intuition

A symmetric condor pays a debit and risks the same amount in both directions. If you have even a mild lean, you are paying for protection you may not need on one side.

The broken wing version lets you say "I am more worried about one direction than the other." You tighten the wing you fear and widen the wing you do not. The wider wing costs less to buy, which is what creates the credit. In exchange, the protected side becomes loss-free while the unprotected side carries the larger exposure.

How a Broken Wing Condor Works

Take a put broken wing condor as the clearest case. You build a near body of strikes and then place the far protective put unusually far away.

Sell put at K2 (higher inner short)
Buy  put at K1 (between body and far wing)
Sell put at K3 ... and the symmetry is broken because
Buy  put at K4 is skipped further out than the call side

Net effect:
  - cheaper far wing  -> net credit on entry
  - no risk if price goes the protected way
  - wider max loss if price goes the unprotected way

Because the far leg is cheaper the farther it sits, the spread can be opened for zero cost or a credit. The protected direction has no max loss because the credit covers that wing. The unprotected direction holds a defined but larger loss equal to the wide-wing width minus net credit.

Worked Example

A stock trades at 100 and you expect it to stay flat or drift up, but you fear a downside gap less than an upside one.

You sell a 95 put and buy a 90 put (a 5-wide put spread) and sell a 105 call and buy a 115 call (a 10-wide call spread). The call wing is "broken" because it is twice as wide as the put wing.

The wider call wing costs less per point of protection, so the whole package comes in for a 0.50 net credit instead of a debit. If the stock stays between 95 and 105 at expiration, you keep the credit and all premium decay. If it falls, your put spread caps the loss at 5.00 minus credit. If it rallies hard past 115, the wider call wing means the loss is larger there, which is the risk you accepted in exchange for the credit and the tighter downside.

Common Mistakes

1. Forgetting which side carries the fat tail. The wider wing is where the big loss lives. Traders who set it up backward put their large risk in the direction they actually fear.

2. Treating the credit as free money. A net credit does not mean no risk. The unprotected side can still produce a defined loss larger than the credit collected.

3. Skipping too many strikes. Pushing the far wing out very far maximizes the credit but also maximizes the worst-case loss on that side. Balance the credit against the tail.

4. Ignoring assignment on the short legs. Two short options sit inside the structure. Near expiration, in-the-money shorts can be assigned early, especially around ex-dividend dates.

5. Using it without a directional view. The whole point is asymmetry. If you are truly neutral with no lean, a balanced condor or iron condor is the cleaner choice.

Frequently Asked Questions

What is a broken wing condor in simple terms? It is a condor with one protective wing moved farther out than the other. That skipped strike usually lets you enter for a credit and removes the loss on the protected side.

How does a broken wing condor affect investment decisions? It lets you express a mild directional lean while still earning premium in a flat market. In the worked example, widening the call wing produced a 0.50 credit and zeroed out downside loss inside the body.

What is a real-world example of a broken wing condor? A trader neutral on an index but more afraid of a sharp rally sells a tight put spread and a wider call spread, collecting a credit and accepting a larger loss only on a big move up.

How can investors use a broken wing condor effectively? Place the wider wing in the direction you consider less likely, size the skip so the credit is meaningful but the tail loss stays acceptable, and define an exit before entry.

How is a broken wing condor different from a standard iron condor? An iron condor has equal wing widths and symmetric risk. A broken wing condor deliberately widens one wing, shifting risk to one side and usually converting the trade to a net credit.

Sources

1. OIC (The Options Industry Council). "Short Condor (Iron Condor)." https://www.optionseducation.org/strategies/all-strategies/short-condor
2. The Options Playbook. "Skip Strike (Broken Wing) Butterfly Call." https://www.optionsplaybook.com/option-strategies/broken-wing-butterfly-call
3. Cboe Options Institute. "Options Education and Strategy Resources." https://www.cboe.com/optionsinstitute/
4. Damodaran, A. (NYU Stern). "Options Arbitrage." https://pages.stern.nyu.edu/~adamodar/New_Home_Page/invfables/optionarb.htm

Disclaimer

This article is educational content only and is not financial advice. Nothing here is a recommendation to buy, sell, or hold any security. Consult a licensed advisor before making investment decisions.