If we were to simply pay the ask price for the options we need to buy and collect the bid price for the options we need to sell, we would pay 19.50 for this AAPL call condor rather than the 18.87 we assumed earlier. We'd pay 0.63 more, driving our maximum profit from 11.13 to 10.50 without any change in how or where that maximum profit is achieved. Given that we'd hope to execute our condor at those midpoints we originally used but that we'd have to give up something to get our trade done, after all, market makers aren't in business to facilitate our trade without making any profit for themselves, it's very likely that our actual execution price, the price we actually pay, is going to be higher than 18.87. Is there a way to reduce the impact of the bid/ask spread on the in-the-money call vertical spread? If we look at the four options making

TABLE 12.5 Bid and Ask Prices for Our AAPL Call Condor

 Option Bid Ask September 410 call 46.70 47.30 September 440 call 22.25 22.70 September 470 call 7.85 8.00 September 500 call 2.26 2.30

FIGURE 12.8 An Iron Condor in AAPL

The maximum profit for this trade would be the total of 12.10 received, 5.65 for selling the out-of-the-money call spread and 6.45 for selling the out-of-the-money put spread and would be realized if both vertical spreads expired worthless meaning AAPL was between 440 and 470 at option expiration, the same range of underlying prices that yielded the maximum profit for our original call condor. That maximum profit of 12.10 is not very different from the maximum profit of 11.13 for the first condor we looked at.

The maximum loss for this trade would be 17.90, the 30.00 maximum value of both spreads less the 12.10 received. We would experience that maximum loss if either of those vertical spreads was fully in-the-money at expiration. That means AAPL would have to be below 410 or above 500 at expiration for this trade to realize its maximum loss. It's interesting that this is the same range that would result in the maximum potential loss for our call condor. This maximum potential loss of 17.90 is not that much different than the maximum potential loss of 18.87 for our call condor spread.