RISK & CONTROL STRATEGY

LONG CALL CONDOR

It consist of

Buying 1 ITM Call (Lower Strike)

Selling 1 ITM Call (Lower Middle)

Selling 1 OTM Call (Higher Middle)

Buying 1 OTM Call (Higher Strike)

Volatility

All other things being equal, an increase in implied volatility if the underlying is

between the two short strikes when established would have a negative impact on

this strategy. As with most strategies however, the impact of implied volatility

changes will depend on strike selection relative to the stock price when the

position is established

LONG CALL CONDOR

Maximum LossThe maximum loss is limited to the net debit paid

Maximum gainThe maximum gain would occur if the underlying security is between the two short call strikes  

(Lowest short call strike – lowest long call strike) – Net premium paidBreakevenThere are two breakeven points. This strategy breaks even if at expiration the underlying security is above the lower long call strike plus the amount of premium paid to initiate the position or if the underlying is below the highest long call strike less the premium paid.

Downside breakeven = lowest long call strike + net debit paid Upside breakeven = highest long call strike - net debit paid

LONG CALL CONDOR

•Assignment Risk

•Expiration Risk

CMP=100    Buy 1 ITM Call Option Strike Price (Rs.) 80  Premium (Rs.) 10Sell 1 ITM Call Option Strike Price (Rs.) 90  Premium (Rs.) 6Sell 1 OTM Call Option Strike Price (Rs.) 110

Premium (Rs.) 4Buy1 OTM Call Option Strike Price (Rs.) 120

Premium (Rs.)2

LONG CALL CONDOR

Example @ INDIAN HOTELS COMPANY LTD

On expiry IHC Closes at

Net Payoff from 1 ITM Call purchased (Rs.)

Net Payoff from 1 ITM Call sold (Rs.)

Net Payoff from 1 OTM Call sold (Rs.)

Net Payoff from 1 OTM Call purchased (Rs.)

Net Payoff (Rs.)

40 -10 6 4 -2 -250 -10 6 4 -2 -260 -10 6 4 -2 -270 -10 6 4 -2 -280 -10 6 4 -2 -282(82-80)-10=-8 6 4 -2 090(90-80)-10)=0 6 4 -2 8

100(100-80)-10=10 (90-100)+6=-4 4 -2 8

110 20(90-110)+6=-14 4 -2 8

118 28(90-118)+6=-22 (110-118)+4=-4 -2 0

120 30 -24(110-120)+4=-6 -2 -2

130 40 -34 -16(130-120)-2=8 -2

140 50 -44 -26(140-120)-2=18 -2

150 60 -54 -36(150-120)-2=28 -2

CMS Business School Jain University