Condor call

Article contents



At a glance



Setting up the strategy


  1. Buy one in-the-money call 

  2. Sell one in-the-money call with a higher strike price

  3. Sell one out-of-the-money call

  4. Buy one out-of-the-money call with a higher strike price
All call options must have the same expiry date.

At expiration, you want the stock to close between the strike prices of the short calls.

Who should run this?


Advanced traders only.

Margin requirements


Learn more about Questrade’s option margin requirements.


Strategy overview



A condor call is an options strategy in which a trader simultaneously does the following:

  • Buys one in-the-money call 
  • Sells one in-the-money call with a higher strike price
  • Sells one out-of-the-money call
  • Buys one out-of-the-money call with a higher strike price
All call options must have the same expiry date.

Market outlook


  • Neutral

Strategy benefits


  • Profit potential is good because there’s a relatively low cost required entering into the strategy.
  • Risk is minimal if the stock were to rise or drop significantly. 
  • Maximum loss and maximum profit can be accurately estimated.

Strategy downsides


  • Lower maximum profit and higher maximum loss than other neutral strategies
  • Strategy should only be implemented by experienced traders due to its complexity.

Condor call example



Scenario


ABC shares are currently trading at $54 in March 2013, and you believe the stock will remain stagnant for the next 30 days. To set up a condor call strategy, you do the following:

  • Buy one April $44 call option for $1105 ($11.05 premium x 100 shares)
  • Sell one April $49 call option for $604 ($6.04 premium  x 100 shares)
  • Sell one April $59 call option for $53 ($0.53 premium x 100 shares)
  • Buy one April $64 call option for $8 ($0.08 premium x 100 shares)
To enter into this strategy, you will be initially debited $456.


Possible results


  1. Upon expiration in April, ABC stock is trading at $43. In this case, all options would expire worthless – your maximum loss would be  $456, which was your initial net debit to enter into the strategy.

  2. At expiration the stock’s trading at $63, meaning the two short call options and the higher strike long call expire in the money. In this case, the 44 call option cancels out the 49 call option, but you attain $500 “profit”. However, you would be short the 59 call option. In this case, you would close out your position at $63 to bring your losses to $356.

  3. The shares are trading at $55 at expiration. In this case, the 49 short call and 44 long call both finish in the money. Your profit on the trade would be $500. After subtracting the $456 you used to enter the trade, your total profit would be $44.

Profit and loss explained



Maximum profit

Maximum profit = strike price of lower strike short call – strike price of lower strike long call – option premium paid

Maximum loss


Maximum loss = net debit

Break-even at expiration


  • Break-even point #1= strike price of high strike long call – net debit paid
  • Break-even point #2 = strike price of low strike long call + net debit paid

Sample calculations



  • Stock value at start of strategy: $54
  • To execute the strategy: Buy $44 call option for $1105, Sell $49 call option for $604, Sell $59 call option for $53, Buy $64 call option for $8
  • Result: $456 net debit

Stock price at expiration Profit and loss calculations 
$43 In this case, all options would expire worthless:


$6.04 (option premium received per share for selling the lower strike short call)
x 100 (number of shares)
plus
$0.53 (option premium received per share for selling the higher strike short call)
x 100 (number of shares)
minus
$11.05 (option premium paid per share for buying the lower strike long call)
+ $0.08 (option premium paid per share for buying the higher strike long call)]
= $456 loss
$55 In this case, the 49 short call and 44 long call options would be assigned:
$49 (price per share received for lower strike short call)
x 100 (number of shares)
-
$44 (price per share paid for lower strike long call)
x 100 (number of shares)
- $456 (initial net debit to enter the strategy)
= $44 profit

$63 In this case, the 49 short call, 59 short call and 44 long call would all be assigned:


$49 x 100 (lower strike short call)
-
$44 x 100 (lower strike long call)
+
$59 x 100 (higher strike call)
= $6400 (“profit” from assigned calls, which leaves you short at expiration)
-
$63 x 100 (price per share to close out your position at market value)
-
$456 (initial debit to initiate the strategy)
= $356 loss



Note
: commission fees are not included in the above calculations.


Payoff diagram






Creating a condor call







Standard order details

Order detail

Description

Symbol lookup field

Click  and change the mode to , then enter the symbol you want to buy or sell.

Tip: if you don't know the symbol name, try entering the company name.

The default expiration date, strike price, and strategy appear. 



Modify the expiration date, strike price, and option strategy accordingly. For more information, see Elements of an option quote.

Action The buy or sell action is set for you when you select the strategy type.
Qty

Select a value using the arrows , or enter a value manually.

Note: by default, the quantity will be populated with the value set in your user preferences.
Order type Select the type of order you want to submit. When creating strategy orders, only Limit or Market order types are available. For more information, see Order types.

The limit order type requires you to fill in additional fields. Refer to the table section below for details.
Duration

Select a duration to specify how long the order should remain active. For more information, see Order durations.

Route Select a route or leave the selection at Auto to let the platform determine the best one. Canadian routes will be listed for Canadian symbols and U.S. routes will be listed for U.S symbols.
Sub-route

This field will be filtered according to the route selection. It indicates where you prefer the order to be executed. Leave the selection at Auto to let the platform determine the best route.

Note: sub-route selection is only available for Canadian symbols.
Account

Specify the account you want to use to submit an order. This field will display the account you have set as your default under user preferences, or the account you have selected in any of the linked windows. See Linking and unlinking windows for details.

Order type-specific details
Limit Enter your limit price:

  • To have the price fluctuate according to real-time data, click the lock   and select either Follow ask price  or Follow bid price .
  • To choose a custom price, select Do not follow .
Note: if real-time market data is not available, the limit price will be blank and the float limit icon will be unlocked.




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