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Long Call Condor Option Strategy

Long Call Condor Option Strategy

What is Long Call Condor Option Strategy?

  • Long Call Condor Option Strategy is a range bound strategy. Which consist of 4 different calls of the same expiration. Long Call Condor offers a good Reward / Risk with low cost. Long Call Condor is a directional neutral strategy. Another way to interpret this strategy as a combination of In-The-Money Bull Call Spread, and out of the money Bear Call Spread.

When to Execute?

  • Long Call Condor should be devised when we expect less volatility in the underlying till expiry. It is similar to Call Butterfly Spread with variation that instead of selling 2 ATM Call, we sell 1 ATM Call and 1 OTM Call. In scenarios where the strike difference between 1st and 2nd strike is not equal to the difference between 3rd and 4th strike; it is known as Modified Long Call Condor Strategy.

What is the Trade?

  • Long Call Condor can be executed by Buying 1 lot In-the- Money (ITM) Call, Sell 1 lot At-the-Money (ATM) Call, Sell 1 lot Out-of-Money OTM Call and Buy 1 lot Deep OTM Call.

What will be maximum profit?

  • The maximum gain under this strategy will be if the underlying expires in between the two short call strikes. Maximum Profit is the difference between first and second strike less net outflow.

What will be maximum loss?

  • In all circumstances the maximum loss under long call condor is limited to the net debit paid (assuming the distances between all four strike prices are equal). The maximum loss would occur if the underlying below the lowest long call strike at expiration or at or above the highest long call strike. At the lowest strike all the options would expire worthless, and the debit paid to initiate the position would be lost. At expiration, all the options above the highest strike would be in-the-money and the resulting profits and losses would offset.

What are the advantages?

  • Long Call condor provides a high yielding strategy with low cost. It is best suited for low volatility stock. It is idle for current month expiry.

What are the disadvantages?

  • Time decay is harmful if the stock is below first strike or above fourth strike call and advantageous if the stock is between second and third strike call.

Example for Long Call Condor:

  • Nifty future price is 15800. A Long Call Condor can be devised as follows +1 X 16200 CE = 112.60 -1 X 16000CE = 189.15 Spot 15800 -1 X 15600 CE = 421.35 +1X 15400 CE = 557.45 There are two breakeven points under Iron Condor. Downside breakeven = lowest long call strike + premium paid = 15400 + 59.55 = 15460 Upside breakeven = highest long call strike - premium paid = 16200 – 59.55 = 16140