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.
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.
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