A Short Call Condor Consists of:
- Short 1 ITM Call Option (Lower Strike)
- Long 1 ITM Call Option (Lower Middle)
- Long 1 OTM Call Option (Higher Middle)
- Short 1 OTM Call Option (Higher Strike)
A Short Call Condor is very similar to a short butterfly strategy. The difference is that the two middle bought options have different strikes. The strategy is suitable in a volatile market.
The Short Call Condor involves selling 1 ITM Call (lower strike), buying 1 ITM Call (lower middle), buying 1 OTM call (higher middle), and selling 1 OTM Call (higher strike). The resulting position is profitable if the stock/index shows very high volatility and there is a big move in the stock/index. The maximum profits occur if the stock/index finishes on either side of the upper or lower strike prices at expiration. Let us understand this with an example.