A Long Call Condor consists of:
- Long 1 ITM Call Option (Lower Strike),
- Short 1 ITM Call Option (Lower Middle)
- Short 1 OTM Call Option (Higher Middle)
- Long 1 OTM Call Option (Higher Strike)
A Long Call Condor is very similar to a long butterfly strategy. The difference is that the two middle sold options have different strikes. The profitable area of the pay-off profile is wider than that of the Long Butterfly (see pay-off diagram).
The strategy is suitable in a range-bound market. The Long Call Condor involves buying 1 ITM Call (lower strike), selling 1 ITM Call (lower middle), selling 1 OTM call (higher middle), and buying 1 OTM Call (higher strike).
The long options at the outside strikes ensure that the risk is capped on both sides. The resulting position is profitable if the stock/index remains range bound and shows very little volatility. The maximum profits occur if the stock finishes between the middle strike prices at expiration. Let us understand this with an example.