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Short Call Condor Option Strategy

Short Call Condor Option Strategy

What is Short Call Condor Option Strategy?

  • Short Call Condor Option Strategy is a Volatility strategy. Which consist of 4 different calls of the same expiration. Short Call Condor offers a low Reward for relative higher risk. Short 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 high volatility in the underlying. Short Call Condor is a volatility strategy that expects big moves in underlying to make money. In scenario where strike difference between 1st and 2nd strike is not equal to difference between 3rd and 4th strike; it is known as Modified Short Call Condor Strategy.

What is the Trade?

  • Sell 1 ITM Call, Buy 1 middle ITM Call, Buy 1 middle OTM Call and Sell 1 deep OTM Call.

What will be maximum profit?

  • The maximum gain under this strategy will be if the underlying expires above and lower strike price.

What will be maximum loss?

  • In all circumstances the maximum profit under short call condor is limited to the net received (assuming the distances between all four strike prices are equal). The maximum loss under this strategy will be if the underlying expires in between the two short call strikes. Maximum loss is the difference between first and second call less net credit received.

What are the advantages?

  • Idle for the stock that is range bound for the long time and is expected to give breakout/ breakdown. It is a net credit strategy with defined reward to risk.

What are the disadvantages?

  • 1. Time decay could be beneficial if the stock is near the extremes and can hurt if the stock expires between the middle two strikes. 2.Higher profit potential comes only near expiration.

Example for Short Call Condor:

  • Nifty future price is 15800. A Short 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 short call strike + premium paid = 15400 + 59.55 = 15460 Upside breakeven = highest short call strike - premium paid = 16200 – 59.55 = 16140