The difference between any two strategies, strikes, expirations, etc. is always a tradeoff in risk and reward. Let's put some numbers to the trade to see the differences in the example you gave.

 

If we use a Black-Scholes Model with a stock price of $52.50, 40% volatility, 0% interest, and 30 days to expiration, we get the following option quotes:

 

40 call = $12.52

45 call = $7.73

50 call = $3.80

55 call = $1.41

60 call = $0.39

 

If you buy the 45/50 call spread and sell the 50/55 call spread then that is a long condor. It results in a debit of

-7.73 + 3.80 + 1.41 - 0.39 = $2.91. The maximum profit would be the $5 difference in the center strikes less the debit, which is $2.09.

 

The trader would like to see the stock stay between the center strikes of $50 and $55 in order to collect the full $2.09 reward. As you pointed out, if the stock price rises to $60 or falls to $45 the trader faces the maximum loss of $2.91.

 

With the stock currently at $52.50, the trader needs the stock to stay in a $2.50 range on either side in order to obtain max profit. The stock can fall to $50 or rise to $55 for max profit.

 

What about the 40/45 vertical spread? That costs -$12.52 + $7.73 = $4.79 and can be worth the maximum of $5 (the difference in strikes). Therefore, the max profit is only 21 cents. The trader can have the stock fall from $52.50 all the way down to $45 and still make maximum profit. The condor trader would make maximum loss at that point.

 

There's a relatively small chance of that happening so the vertical spread is relatively low risk. That's why there is a low reward of 21 cents (and also why the market has bid up the price of that spread to $4.79. The high bid is a reflection of the relatively low risk.)

 

The condor trader has a much bigger profit potential but also has a much narrower range for the stock to move in order to make that profit. It is relatively more risky and will therefore contain more profit.

 

As you pointed out, there are differences in directional risks. The vertical spread trader can have the stock rise indefinitely and still make max profit. That's not true for the condor trader. The condor trader needs the stock to stay still. If it moves up or down by just $2.50, the vertical spread trader begins losing money. The condor trader is more likely to have losses so will be compensted by a higher potential return.

 

Hopefully you now see the two strategies are nothing more than different risk-reward profiles.

Bill