Long Call Condor
Analyze a long call condor
The long call condor is a volatility strategy which involves a combination of a short vertical call spread and a long vertical call spread. More specifically, the position requires the simultaneous sale of one out-of-the-money call and the purchase of a deeper out-of-the-money call, as well as the simultaneous sale of one in-the-money call and the purchase of a deeper in-the-money call. All of the options should have the same expiration date, with the play typically being established for a net debit. The strategy is suitable in a range bound market which is characterized by levels of higher buying pressure, known as a support, and higher selling pressure, known as resistance. However, as major support and resistance levels are defined, range traders apply the unique concept of buying at support and selling at resistance. The maximum potential profit and the maximum loss for the long call condor spread are limited. 1. Deduce the motivation of the strategy
Long call condor comes into play when an investor believes that the underlying market will trade in a range with low volatility until the option expires.
Long condors are quite popular because they offer an attractive risk/reward ratio, together with low costs.
Furthermore, the long options at the outside strikes ensure that the risk is capped on both sides, and this is a much more conservative strategy which would protect an investor against unlimited losses. Losses are limited to the premium paid to initiate the trade. 2. Deduce the payoff table
The payoff table can be explained using the following example;
Zimplow shares are currently trading at $4500. An investor expects low volatility in the zimplow share and expects the market to remain range bound. The investor buys 1 ITM Zimplow Call Options with a strike price of $4300 at a premium of $45, sells 1 ITM Zimplow Call Option with a strike price of $4400 at a premium of $28, sells 1 OTM Zimplow Call Option with a strike
The long call condor is a volatility strategy which involves a combination of a short vertical call spread and a long vertical call spread. More specifically, the position requires the simultaneous sale of one out-of-the-money call and the purchase of a deeper out-of-the-money call, as well as the simultaneous sale of one in-the-money call and the purchase of a deeper in-the-money call. All of the options should have the same expiration date, with the play typically being established for a net debit. The strategy is suitable in a range bound market which is characterized by levels of higher buying pressure, known as a support, and higher selling pressure, known as resistance. However, as major support and resistance levels are defined, range traders apply the unique concept of buying at support and selling at resistance. The maximum potential profit and the maximum loss for the long call condor spread are limited. 1. Deduce the motivation of the strategy
Long call condor comes into play when an investor believes that the underlying market will trade in a range with low volatility until the option expires.
Long condors are quite popular because they offer an attractive risk/reward ratio, together with low costs.
Furthermore, the long options at the outside strikes ensure that the risk is capped on both sides, and this is a much more conservative strategy which would protect an investor against unlimited losses. Losses are limited to the premium paid to initiate the trade. 2. Deduce the payoff table
The payoff table can be explained using the following example;
Zimplow shares are currently trading at $4500. An investor expects low volatility in the zimplow share and expects the market to remain range bound. The investor buys 1 ITM Zimplow Call Options with a strike price of $4300 at a premium of $45, sells 1 ITM Zimplow Call Option with a strike price of $4400 at a premium of $28, sells 1 OTM Zimplow Call Option with a strike