Options Trading Strategies: Short Condor Calls
A short condor spread with calls is a four legged strategy, opposite to the long condor with calls, and is created by selling one In The Money call at a lowest strike price, buying one In The Money call with a higher strike price, buying another Out of The Money call with an even higher strike price, and selling 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 side strikes.You can look at a short condor spread with calls as a combination of an In The Money bear call spread and an Out of The Money bull call spread.
When to use this strategy?
You are neutral on the market movement and bullish on the volatility, so you are expecting a BTC/ETH price movement outside the range of the highest and lowest strike price and want to earn a profit if the BTC/ETH makes a dramatic move in either direction.
Below is a Profit and Loss chart example of a short condor with calls options strategy:
Pros:
Maximum loss is limited.
Cons:
The higher profit potential comes with a wider range between the middle strikes, which widens the spread lowering your probability for profit. The amount of the potential loss is bigger than the amount of the potential profit.
Example:
In this example, BTC is trading at 38,401.06 USD, and you expect its price to dramatically move in either direction. You have sold an ITM call with a strike price of 36,000.00 USD, bought an ITM call with with a strike price of 37,000.00 USD, bought an OTM call with a strike price of 39,000.00 USD, and sold an OTM call with a strike price of 40,000.00 USD, all with an expiration date of February 4th 2022.
As this is a credit spread, and the long calls cost you less than a premium from the short calls you have received a net premium of 704.08 USD, which is also you maximum profit in this combination.
The Profit and Loss chart is given below:
Upon expiration:
If the BTC price is above the short ITM call strike and at or below the long ITM strike, you are in the profit as long as the price ends up below the first break even point.
If the BTC price is between the middle strikes (long ITM strike, and long OTM strike), then the short ITM call is assigned and the long ITM call is exercised. This is your maximum loss and it is equal to difference between adjacent strikes minus the net premium received.
If the BTC price is above the long OTM call strike and at or below the highest strike (short OTM strike), you are in the profit as long as it is above the second break even point.
If the BTC price is above the highest strike, then both short calls (lowest and highest strikes) are assigned and both long calls (middle two strikes) are exercised. This means that 2 bitcoins are purchased and 2 are sold, and your maximum gain is the net premium you have received.
| BTC at Expiry (USD) | Payoff (USD) |
|---|---|
| 36,000.00 (strike price SC ITM) | +704.08 (max gain) |
| 36,411.00 | +293.92 |
| 37,704.08 (break even 1) | 0 |
| 36,821.00 | -116.92 |
| 37,000.00 & 39,000.00 (LC ITM, LC OTM) | -295.92 (max loss is between strikes) |
| 39,151.00 | -114.92 |
| 39,395.92 (break even 2) | 0 |
| 39,614.00 | +318.92 |
| 40,000.00 (strike price SC OTM) | +704.08 (max gain) |