Long Call Condor

Long Call Condor

Post By - Laxmi Mahera
Review By : Rohan Sharma
Updated on : October 26, 2021

Basics Concepts – Long Call Condor

Description – Long Call Condor

The Long Call Condor involves a low strike long call, a lower middle ITM short call, a higher middle OTM short call, and a higher OTM long call.
The resulting is profitable in the event of range bound action by the stock.
Risk/reward ratio is attractive, and the profitable area of the risk profile is wider than that of the Long Butterfly.
Long call Condor are quite popular because they offer a good risk/reward ratio, together with low cost.
Buy one lower strike (ITM) call.
Sell one lower middle strike (ITM) call.
Sell one higher middle strike (OTM) call.
Buy one higher strike (OTM) call.
All options share the same expiration date for this strategy.
For this strategy, you must use all calls.
Remember that there should be equal distance between each strike price.
The maximum reward occurs if the stock is at the middle strike at expiration.

Context - Long Call Condor

Outlook

With Long Call Condor, your outlook is direction neutral you expect very little movement in the stock price.

Rationale

With long condors, you are looking to execute a potentially high yielding trade at very low cost, where your maximum profits occur if the stock finishes between the middle strike prices at expiration.
You are anticipating very low volatility in the stock price.

Net Position

This is a net debit trade, although the net cost is typically low.
Your maximum risk is the net debit of the bought and sold options.
Your maximum reward is the difference between adjacent strike prices less the net debit.

Effect of Time Decay

Time decay is helpful to this position when it is profitable and harmful when the position is unprofitable.
When you enter the trade, typically the stock price will be in the profitable area of the risk profile, so from that perspective, time decay harms the position.

Time Period to Trade

Month or Less

Breakeven Down = [Lower Strike + Net Debit]

Breakeven Up = [Higher Strike – Net Debit]

Steps to Trading a Long Call Condor

Steps In

Try to ensure that the trend is range bound and identify clear areas of support and resistance.
Try to ensure that no news is coming out soon for the stock.

Steps Out

Manage your position according to the rules defined in your Trading Plan.
If the stock veers outside your stop loss areas above or below the stock price, then unravel the entire position.
You can unravel the position just before expiration—remember to include all the commissions in your calculations.

Exiting the Trade - Long Call Condor

Exiting the Position

With this strategy, you can simply unravel the spread by buying back the options you sold and selling the options you bought in the first place.
Advanced traders may leg up and down or only partially unravel the spread as the underlying asset fluctuates up and down.

Mitigating a Loss

Unravel the trade as described previously.
Advanced traders may choose to only partially unravel the spread leg-by-leg and create alternative risk profiles.

Advantages and Disadvantages

Advantages

Profit from a range bound stock for very little cost.
Capped and low risk.
Comparatively high risk/reward ratio if the stock remains range bound.

Disadvantages

The higher profit potential comes with a narrow range between the wing strikes.
The higher profit potential only comes nearer expiration.
Bid/Ask Spread can adversely affect the quality of the trade.

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