Description:
This is a sideways strategy consisting of a long position in an ITM call option with a strike price K1 , a short position in an ITM call option with a higher strike price K2 , a short position in an OTM call option with a strike price K3 , and a long position in an OTM call option with a higher strike price K4 . All strikes are equidistant: K4 − K3 = K3 − K2 = K2 − K1 = κ . This is a relatively low cost net debit trade. The trader’s outlook is neutral. This is a capital gain strategy.
Understanding the Long Call Condor
The long call condor strategy involves the purchase of four different call options on the same underlying asset, all with the same expiration date but different strike prices. It consists of buying one in-the-money (ITM) call at Strike A, selling one slightly less ITM call at Strike B, selling another slightly out-of-the-money (OTM) call at Strike C, and buying another OTM call at Strike D. The spacing between strikes is typically equal. This strategy is used when the trader expects minimal price movement in the underlying asset. It is a net debit strategy, meaning the trader pays a premium to establish the position. The current market outlook is neutral, and the strategy profits from low volatility in the asset price.
This strategy aims to profit from a stock price that stays within a narrow range during the life of the options. It works by setting up a bull call spread between Strike A and Strike B (where the trader profits from a rise in the stock price) and a bear call spread between Strike C and Strike D (where the trader profits from a fall in the stock price). The goal is for the price of the underlying to be between Strike B and Strike C at expiration, allowing both the bull and bear spreads to be maximally profitable.