What Is a Long Call Condor

Key takeaways

• Long call condor is an options strategy that uses four call options.
• All the call options have different strike prices but the same expiration dates.
• The long call condor is a low-risk options trading strategy that limits the losses to the net debit paid.

New investors mostly start with stocks and mutual funds when they start investing as these are the most basic and simple investment instruments. However, experienced investors who started with stocks and mutual funds diversify and consider other asset classes over time to ensure they reap the benefits of other investment instruments. One such asset class is derivatives, which contain futures and options. Among both, options contracts are widely used by investors and traders as they give them an option, not an obligation, to exercise the contract. When it comes to options contracts, traders create and employ numerous options trading strategies to ensure they increase their returns and decrease the chances of losses. One such options trading strategy is long call condor.

If you are looking to trade options, understanding what is long call condor can immensely help. This blog will help you understand what is long call condor, and how you can use the strategy to increase your profit margins.

A long call condor is an advanced options trading strategy that involves using four call options with different strike prices but the same expiration dates. Options traders employ long call condor when they believe that the underlying asset’s price will see limited to no price volatility. The strategy is similar to the iron condor strategy but differs slightly, as long call condor only uses call options and not any put options.

A trader earns maximum profit from employing the long call condor if the underlying asset’s price ends up between the middle two strike prices at expiration. The break-even point is calculated by adding and subtracting the net debit from the strike prices of the middle options. The trader incurs a maximum loss in long call condor equal to the amount of net debit paid to enter the four contracts. Hence, the long call condor strategy is considered a neutral trading strategy with limited risk and limited reward, designed for traders who want to utilise limited volatility in the underlying asset.

Read more: Top options trading strategies 

Now that you know what is long call condor, the next step is to know how to create a long call condor while options trading. Here are the steps involved:

Selection:

Choose the stock or a market index on which you want to create the long call condor strategy. Determine an expiration date based on your investment goals, risk appetite and time horizon.

Choose the strike prices:

• Buy one in-the-money (ITM) call option with the lowest strike price.
• Sell one slightly out-of-the-money (OTM) call with the next higher strike price.
• Sell one further out-of-the-money (OTM) call with a higher strike price.
• Buy one out-of-the-money (OTM) call with the highest strike price.

Options traders use long call condor as it provides them numerous benefits to increase their profit margin with limited loss potential. Here are the advantages of a long call condor:

• Limited risk: The maximum loss a trader can incur in long call condor is limited to the net debit paid for the contracts, making the strategy a low-risk options trading strategy.
• Consistent profit: Long call condor generates profits if the underlying asset’s price remains within the middle strike prices, making it ideal to earn profits in low volatility.
• Low capital requirement: The establishment of long call condor requires less capital than some other options trading strategies as the risk is limited.
• Time decay: The Long Call Condor can benefit from time decay, especially if the underlying asset’s price stays within the profit range as the expiration date approaches.

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Although long call condor comes with limited loss potential, it may include other risks. Here are the risks involved in a long call condor:

• Limited profit potential: Long call condor limits the profit potential as it occurs within a narrow range of the underlying asset’s price. This means that even a slight price fluctuation can decrease profits.
• Complexity: The execution of long call condor needs 4 different types of call options, making it complex to establish and prone to errors, which may lead to losses.
• Time decay risk: Although the time decay factor helps traders, the benefit depends on the price remaining within the profitable range. It can lead to lower profits or losses if the price moves closer to the break-even points or outside the profitable price range.
• Transaction costs: Executing four call options for a long call condor can increase the overall transaction costs, leading to lower profits or losses.

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Knowing what long call condor is important for options trading, but the traders can also benefit by learning how it differs from other options strategies. Here is the difference:

• Long call condor vs. Iron condor: Long call condor only uses call options, while iron condor also uses put options to create the strategy.
• Long call condor vs. long call butterfly: Long call condor includes a bear call spread and bull call spread for a lower maximum profit, while long call butterfly uses various types of call options to offer a higher maximum profit.
• Long call condor vs. straddle/strangle: Long call condor is ideal when the market volatility is low. On the other hand, straddle/strangle is ideal when the market volatility is high.

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Options trading can prove to be highly beneficial but can also lead to high losses. There are numerous options trading strategies, such as long call condor, that offer limited profits because of limited risk. If the trade pays off, you can make limited but good profits, and if the trade turns against you, you only incur a loss equal to the net debit, making it a low-risk options trading strategy. Now that you know what is long call condor, you can use the strategy to trade options better.

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