Options Trading Strategies: Long Condor Calls
A long condor spread with calls is a four legged strategy created by buying one In The Money call at a lowest strike price, selling one In The Money call with a higher strike price, selling another Out of The Money call with an even higher strike price, and buying one more Out Of The Money call with a highest strike price. All calls are with a same expiration date and there is an equal distance between each strike.
You can look at a long condor spread with calls as a combination of an In The Money bull call spread and an Out of The Money bear call spread.
When to run this strategy?
You are neutral on the market movement and bearish on the volatility, so you expect a minimal BTC/ETH price change in the specified time and looking to execute a good risk/reward ratio trade at a low cost.
Below is a Profit and Loss chart example of a long condor with calls options strategy:
Pros:
Offers a good risk/reward ratio, together with low cost.
Cons:
The higher profit potential requires a narrow range between the wing strikes, which shortens the spread.
Example:
In this example, BTC is trading at 48,670.22 USD, and you expect its price to moderately move in either direction. You have bought an ITM call with a strike price of 35,000.00 USD, and sold an ITM call with with a strike price of 37,000.00 USD, sold an OTM call with a strike price of 39,000.00 USD, and bought an OTM call with a strike price of 41,000.00 USD, all with an expiration date of February 11th 2022.
As this is a debit spread, and the long calls cost you more than a premium from the short calls you have paid a net premium of 911.20 USD, which is also your maximum loss.
The Profit and Loss chart is given below:
Upon expiration:
If the BTC price is below the lowest strike price, then all calls expire worthless, resulting in maximum loss.
If the BTC price is above the lowest strike and at or below the ITM short call strike, you are in the profit if the BTC price is above the break even.
If the BTC price is above the OTM short call strike and at or below the highest strike, you are in the profit if the BTC price is below the second break even.
If the BTC price is above the highest strike, then both long calls are exercised and the two short calls are assigned. The result is that 2 BTC are bought and 2 are sold, resulting again with the maximum loss.
Your maximum gain is when the BTC price ends up between the two short call strikes (middle strikes) and equals the difference between adjacent strikes minus the net premium.
| BTC at Expiry (USD) | Payoff (USD) |
|---|---|
| 35,000.00 (strike price LC ITM) | -911.20 (max loss) |
| 35,428.00 | -483.20 |
| 35,911.20 (break even 1) | 0 |
| 36,414.00 | +502.80 |
| 37,000.00 & 39,000.00 (SC ITM, SC OTM) | +1,088.80 (max gain is between strikes) |
| 39,589.00 | +499.80 |
| 40,088.80 (break even 2) | 0 |
| 40,585.00 | -496.20 |
| 41,000.00 (strike price LC OTM) | -911.20 (max loss) |