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Long Condor (Long Call Condor) Options Trading Strategy Explained

Published on 4/19/2018 1:35:30 AM | Modified on Tuesday, May 29, 2018

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Long Condor (Long Call Condor)
Long Condor (Long Call Condor) Options Strategy
Strategy LevelAdvance
Instruments TradedCall
Number of Positions4
Market ViewNeutral
Risk ProfileLimited
Reward ProfileLimited
Breakeven Point

A Long Call Condor is a neutral market view strategy with a limited risk and a limited profit. The long call condor investor is looking for little or no movement in the underlying.

It is a 4 leg strategy which involves buying 2 ITM Calls and 2 OTM Calls at different strike price with the same expiry date. The strategy is similar as long butterfly strategy with the difference being in the strike prices selected.

Suppose Nifty is currently trading at 10,400. The long call condor strategy can be used if expect very little volatility in the index and market to largely remain range bound. To profit in such a market scenario lets:

Long Call Condor Options Strategy
OrdersExample NIFTY Strike Price
Buy 1 ITM CallNIFTY18APR10200CE
Sell 1 ITM Call (Higher Strike)NIFTY18APR10300CE
Sell 1 OTM CallNIFTY18APR10500PE
Buy 1 OTM Call (Higher Strike)NIFTY18APR10800PE

The Net debit of premium is the maximum possible loss while the maximum profit will be when Nifty is between the strike prices of 2 short calls on expiry.

When to use Long Condor (Long Call Condor) strategy?

The Long Call Condor works well when you expect the price of the underlying to be range bound in the coming days. In other words, when the trader is anticipating minimal price movement in the underlying during the lifetime of the options.

Example

Long Condor Example 1

Let's take a simple example of a stock trading at ₹45 (spot price) in June with the lot size of 100 shares in 1 lot. The option contracts for this stock are available at the following premium:

  • July 35 Call - ₹11
  • July 40 Call - ₹7
  • July 50 Call - ₹2
  • July 55 Call - ₹1
  1. Buy 1 ITM Call

    Buy July 35 Call = ₹11*100 = ₹1100

  2. Sell 1 ITM Call (Higher Strike)

    Sell July 40 Call = ₹7 * 100 = ₹700

  3. Buy 1 OTM Call (Higher Strike)

    Buy July 55 Call = ₹1 * 100 = ₹100

  4. Sell 1 OTM Call

    Sell July 50 Call = ₹2 * 100 = ₹200

Net Debit of Premium = 1100 - 700 + 100 - 200 = ₹300

Maximum Possible Loss = Net Debit of Premium = ₹300

Scenario 1: Stock price goes down to ₹35

At this price all options expires worthless. Thus the net loss is ₹300 which was paid at the time of buying the strategy.

Scenario 2: Stock price reaches to ₹55

July 35 Call (Long) = (55-35)*100 = ₹2000

July 40 Call (Short) = (40-55)*100 = -₹1500

July 55 Call (Long) = ₹0

July 50 Call (Short) = (50-55)*100 = -₹500

Net Position = 2000 - 1500 + 0 - 500= ₹0

Initial Debit: -₹300

Maximum Loss: ₹300 paid as net debit of premium at the time of buying the strategy.

Scenario 3: Stock price remain at ₹45

July 35 Call (Long) = (45-35)*100 = ₹1000

July 40 Call (Short) = (40-45)*100 = -₹500

Initial Debit: -₹300

Net Profit = ₹1000 - ₹500 - ₹300 = ₹200

In this example, the maximum profit is achieved if the underlying stock price at expiration is anywhere between ₹40 and ₹50.

Example 2 - Bank Nifty

Long Call Condor Example Bank Nifty
Spot Price8900
Lot Size25
Long Call Condor Options Strategy
Strike Price(₹)Premium(₹)Premium Paid(₹)
Buy 1 Deep ITM Call870058014500
Sell 1 ITM Call8800-520-13000
Sell 1 OTM Call9000-420-10500
Buy 1 Deep OTM Call91003809500
Net Premium500
Upper Breakeven(₹)Higher Strike price - Net Premium Paid8600
Lower Breakeven(₹)Lower Strike price + Net Premium Paid9200
Maximum Possible Loss (₹)Net Premium Paid500
On Expiry Bank NIFTY closes atNet Payoff from 1 Deep ITM Call bought (₹) 8700Net Payoff from 1 ITM Call sold (₹) 8800Net Payoff from 1 OTM Call sold (₹) 9000Net Payoff from 1 deep OTM call bought (₹) 9100Net Payoff (₹)
8400-145001300010500-9500-500
8600-145001300010500-9500-500
8720-140001300010500-95000
8800-120001300010500-95002000
9000-7000800010500-95002000
9080-500060008500-95000
9200-200030005500-7000-500
94003000-2000500-2000-500

Market View - Neutral

When you are unsure about the direction in the movement in the price of the underlying but are expecting little volatility in it in the near future.

Actions

  • Buy Deep ITM Call Option
  • Buy Deep OTM Call Option
  • Sell ITM Call Option
  • Sell OTM Call Option

Suppose Nifty is currently trading at 10,400. You expect little volatility in the index and market to largely remain range bound. To profit in such a market scenario, you can buy buy 1 ITM Nifty Call Option at 10,200, sells 1 ITM Nifty Call Option 10,300, sell 1 OTM Call Option at 10,500 and buy 1 OTM Nifty Call Option at 10,800. The Net debit of premium is the maximum possible loss while your maximum profit will be when Nifty is between the strike prices of 2 short calls on expiry.

Risk Profile of Long Condor (Long Call Condor)

Limited

The maximum risk in a long call condor strategy is equal to the net premium paid at the time of entering the trade. The max risk is when the price of the underlying equal to or below the lower strike price or when the underlying price is equal to or above the higher strike price of Options in trade at expiration time.

Reward Profile of Long Condor (Long Call Condor)

Limited

The maximum profit in a long call condor strategy is realized when the price of the underlying is trading between the two middle strikes at time of expiration.

Max Profit Scenario of Long Condor (Long Call Condor)

Both ITM Calls exercised

Max Profit = Strike Price of Lower Strike Short Call - Strike Price of Lower Strike Long Call - Net Premium Paid

Max Loss Scenario of Long Condor (Long Call Condor)

All Options exercised or not exercised

Max Loss = Net Premium Paid

Advantage of Long Condor (Long Call Condor)

It allows you to profit from range bound underlying at low capital. The profit is high with limited risk exposure.

The maximum profit for the condor trade may be low in relation to other trading strategies but it has a comparatively wider profit zone.

Disadvantage of Long Condor (Long Call Condor)

Strike prices selected may have an impact on the potential of profit.

Brokerage and taxes makes a significant impact on the profits from this strategy. The cost of trading increases with number of legs. This strategy has 4 legs and thus the brokerage cost is higher.

How to exit?

Reverse the trade by selling bought Options and buying back short Options.

Simillar Strategies

Long Put Butterfly, Short Call Condor, Short Strangle

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