Long Call Condor in Options Trading

A Long Call Condor, similar to a long butterfly strategy, is a neutral market-view strategy that offers limited risk and profit. The difference between a long call condor and a butterfly strategy lies in the strike prices selected. The profitable field of the pay-off profile is much wider than that of the long butterfly.

The Long Call Condor is a 4-leg strategy that involves buying 1 in-the-money (ITM) call (lower strike), selling 1 ITM call (lower middle), selling 1 out-of-the-money (OTM) call (higher middle), and buying 1 OTM call (higher strike) – all with the same expiry date and underlying asset. The long Options at the outside strike ensure the risk is capped on both sides. The resultant position is profitable if the stock remains within range and shows negligible volatility. An investor can maximize gains if the stock finishes between the middle strike prices of the two sold contracts at expiration. An investor who deploys a long call condor is ideally expecting negligible to no movement whatsoever, in the underlying asset’s price.

An alternative way to think of the Long Call Condor Options strategy is, an ITM bull call spread coupled with an OTM bear call spread, where the bear call spread is at higher strikes than the bull call spread.

When to Use a Long Call Condor Strategy?

The Long Call Condor Options strategy works effectively when the price of the underlying asset is expected to be range-bound in the subsequent days. Simply put, when a trader anticipates minimal price movement in the underlying asset during the tenure of the option, that is the optimum time to use a Long Call Condor.

How to Construct a Long Call Condor?

As mentioned above, a Long Call Condor can be constructed by buying 1 lower ITM call, selling 1 lower-middle ITM call, selling 1 higher middle OTM call, and buying 1 higher OTM call. All of the Options should be with the same underlying security and with the same expiry date.

Below is a summary of a Long Call Condor for better understanding.

• Broad strategy: Buy 1 ITM call, sell 1 ITM call, sell 1 OTM call, and buy 1 OTM call
• Market outlook: Neutral on market view; Bearish on volatility
• Motive: Anticipating minimal price movements in underlying assets
• Upper break-even: Higher strike price - Net premium
• Lower break-even: Lower strike price + Net premium
• Risk: Restrained to net premium
• Reward: Restrained - Maximum gains made when the underlying expires between sold strikes
• Margin requirement: Yes

Final word

A Long Call Condor Options strategy is best used when there is a degree of certainty that an underlying security will not show significant movement but stays in the range of strikes sold. A Long Call Condor is a limited reward strategy that is meant for experienced traders.