Skip to content

Long Call Condor Spread-Neutral Strategy

Options-Trading-Beginners

Explanation

Since this strategy is a neutral strategy and in order to make profits, the underlying asset should remain range bound i.e., between the 4 strikes.The long call condor investor is looking for little or no movement in the underlying.

A Long Call Condor is made for debit investment, meaning that the trader pays for executing this strategy. This 4-legoption strategy involves buying one Deep in-the-money (ITM)call, selling 1 in-the-money (ITM)call, selling 1 out-of-the-money (OTM)call, buy 1 deep out-of-the-money (OTM)call at different strike price with the same expiry date.The risk and reward both are limited due to offsetting of long and short positions.

A Long Call Condor is similar to a Long Butterfly strategy, wherein the only exception is that the difference of two middle strikes sold (strangle) has separate strikes.

Risk:

The maximum loss is limited to the net debit paid if the underlying is below the lowest long call strike or above the highest long call strike. At the lowest strike, all options expire worthless and the debit paid to initiate the position is lost, while at the highest strike, all options are in-the-money and the profits and losses are offset.

Reward:

The maximum gain would occur if the underlying security is between the two short call strikes at expiration.

Construction

Buy 1 Deep ITM Call Option

Sell1 ITM Call Option

Sell 1 OTM Call Option

Buy 1 Deep OTM Call Option

 

Option Type Expiry Date Strike Price LTP Action No. Of Lots
CALL 27/04/2023 17750.0 68.6 Sell 1
CALL 27/04/2023 17650.0 143.3 Buy 1
CALL 27/04/2023 17800.0 41.8 Buy 1
CALL 27/04/2023 17700.0 102.85 Sell 1

 

Max Risk Max Reward Lower Break Even Upper Break Even
-13.650002 63.65 17636.35 17813.65

 

Market Expiry Payoff 1 Payoff 2 Payoff 3 Payoff 4 Net Premium Option PayOff At Expiry
17350.0 0.0 0.0 0.0 0.0 -13.65 -13.65
17400.0 0.0 0.0 0.0 0.0 -13.65 -13.65
17450.0 0.0 0.0 0.0 0.0 -13.65 -13.65
17500.0 0.0 0.0 0.0 0.0 -13.65 -13.65
17550.0 0.0 0.0 0.0 0.0 -13.65 -13.65
17600.0 0.0 0.0 0.0 0.0 -13.65 -13.65
17650.0 0.0 0.0 0.0 0.0 -13.65 -13.65
17700.0 0.0 50.0 0.0 0.0 -13.65 36.35
17750.0 0.0 100.0 0.0 -50.0 -13.65 36.35
17800.0 -50.0 150.0 0.0 -100.0 -13.65 -13.65
17850.0 -100.0 200.0 50.0 -150.0 -13.65 -13.65
17900.0 -150.0 250.0 100.0 -200.0 -13.65 -13.65
17950.0 -200.0 300.0 150.0 -250.0 -13.65 -13.65
18000.0 -250.0 350.0 200.0 -300.0 -13.65 -13.65
18050.0 -300.0 400.0 250.0 -350.0 -13.65 -13.65
18100.0 -350.0 450.0 300.0 -400.0 -13.65 -13.65
18150.0 -400.0 500.0 350.0 -450.0 -13.65 -13.65

 

Payoff Chart

 

Example

Suppose the trader sees Nifty to be trading in a tight range in weekly expiry as there is no big event coming but want to hedge the position too. He implemented the long call condor option strategy where he bought 1 deep ITM 17650 call option by paying premium of Rs. 143, sold ITM 17700 call option and received Rs 103, sold another 17750 ATM call option and received Rs. 69 and finally bought 17800 OTM call to hedge the overall strategy. His total fund outflow equal to Rs. 650 (143 + 42 – 103 + 69) * 50.

    Open FREE Acccount with us

     

    Scenario1:

     If at expiry the market showed no volatility non either side and closed near 17750 levels. The trader will gain from the Deep ITM call option and will keep the net premium received by shorting the call option.

    Scenario 2:

    If the market moved away from the short call option on either side, the trader will make a limited loss, which is equal to Rs. 680.

    No comment yet, add your voice below!


    Add a Comment

    Your email address will not be published. Required fields are marked *

    F & O

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Open FREE Demat Account in less than 10 minutes (Commodity & Currency)

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Open FREE Demat Account in less than 10 minutes

      20

      Per order + Get Instant Pledge Benefits* + Zero delivery Brokerage

      10

      Per order only (No hidden charges)

      Related Posts

      Bullish Trend Reversal Candlestick Patterns
      Earning a profit in the bullish market is easier, as you can buy any stock...
      Identify Trend in Stock Market
      Derivatives or Future & Options (F&O) segment accounts major volume of trades in the stock...
      Options-Trading-Beginners
      Explanation Reverse iron condors are market neutral strategy with no directional bias. For this strategy...