Long Call Condor Options Trading Strategy

Long Call Condor Options Trading Strategy
by Nilesh Jain 17/04/2017

Long Call Condor options trading strategy

A Long Call Condor is similar to a Long Butterfly strategy, wherein the only exception is that the difference of two middle strikes sold has separate strikes. The maximum profit from condor strategy may be low as compared to other trading strategies; however, a condor strategy has high probability of making money because of wider profit range.

When to initiate a Long Call Condor

A Long Call Condor spread should be initiated when you expect the underlying assets to trade in a narrow range as this strategy benefits from time decay factor.

How to construct a Long Call Condor?

A Long Call Condor can be created by buying 1 lower ITM call, selling 1 lower middle ITM call, selling 1 higher middle OTM call and buying 1 higher OTM calls of the same underlying security with the same expiry. The ITM and OTM call strikes should be equidistant.

Strategy

Buy 1 ITM Call, Sell 1 ITM Call, Sell 1 OTM Call and Buy 1 OTM Call

Market Outlook

Neutral on market direction and Bearish on volatility

Motive

Anticipating minimal price movement in the underlying assets

Upper Breakeven

Higher Strike price - Net Premium Paid

Lower Breakeven

Lower Strike price + Net Premium Paid

Risk

Limited to Net premium paid

Reward

Limited (Maximum profit is achieved when underlying expires between sold strikes)

Margin required

Yes

Let’s try to understand with an example:

Nifty Current spot price

9100

Buy 1 deep ITM call of strike price (Rs)

8900

Premium paid (Rs)

240

Sell 1 ITM call of strike price (Rs)

9000

Premium received (Rs)

150

Sell 1 OTM call of strike price (Rs)

9200

Premium received (Rs)

40

Buy 1 deep OTM call of strike price (Rs)

9300

Premium paid (Rs)

10

Upper breakeven

9240

Lower breakeven

8960

Lot size

75

Net premium paid

60

Suppose Nifty is trading at 9100. An investor Mr. A estimates that Nifty will not rise or fall much by expiration, so he enters a Long Call Condor and buys 8900 call strike price at Rs 240, sells 9000 strike price of Rs 150, sells 9200 strike price for Rs 40 and buys 9300 call for Rs 10. The net premium paid to initiate this trade is Rs 60, which is also the maximum possible loss. This strategy is initiated with a neutral view on Nifty hence it will give the maximum profit only when there is little or no movement in the underlying security. Maximum profit from the above example would be Rs 3000 (40*75). The maximum profit would only occur when underlying assets expires in the range of strikes sold.

In the mentioned scenario, maximum loss would be limited up to Rs 4500 (60*75) and it will occur if the underlying assets goes below 8960 or above 9240 strikes at expiration. If the underlying assets expires at the lowest strike then all the options will expire worthless, and the debit paid to initiate the position would be lost. If the underlying assets expire at highest strike, all the options below the highest strike would be In-the-Money. Furthermore, the resulting profit and loss would offset and net premium paid would be lost.

For the ease of understanding of the payoff schedule, we did not take in to account commission charges. Following is the payoff schedule assuming different scenarios of expiry.

The Payoff Schedule:

On Expiry NIFTY closes at

Net Payoff from 1 Deep ITM Call bought (Rs) 8900

Net Payoff from 1 ITM Call sold (Rs) 9000

Net Payoff from 1

OTM Call sold (Rs)

9200

Net Payoff from 1 deep OTM call bought (Rs) 9300

Net Payoff (Rs)

8600

-240

150

40

-10

-60

8700

-240

150

40

-10

-60

8800

-240

150

40

-10

-60

8900

-240

150

40

-10

-60

8960

-180

150

40

-10

0

9000

-140

150

40

-10

40

9100

-40

50

40

-10

40

9200

60

-50

40

-10

40

9240

100

-90

0

-10

0

9300

160

-150

-60

-10

-60

9400

260

-250

-160

90

-60

9500

360

-350

-260

190

-60

9600

460

-450

-360

290

-60

The Payoff Graph:

Impact of Options Greeks before expiry:

Delta: If the underlying asset remains between the lowest and highest strike price the net Delta of a Long Call Condor spread remains close to zero.

Vega: Long Call Condor has a negative Vega. Therefore, one should initiate Long Call Condor spread when the volatility is high and expect to decline.

Theta: A Long Call Condor has a net positive Theta, which means strategy will benefit from the erosion of time value.

Gamma: The Gamma of a Long Call Condor strategy goes to lowest values if it stays between sold strikes, and goes higher if it moves away from middle strikes.

Analysis of Long Call Condor spread strategy

A Long Call Condor spread is best to use when you are confident that an underlying security will not move significantly and stays in a range of strikes sold. Long Call Condor has a wider sweet spot than the Long Call Butterfly. But there is a tradeoff; this is a limited reward to risk ratio strategy for advance traders.

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Short Call Condor Options Trading Strategy

Short Call Condor Options Trading Strategy
by Nilesh Jain 17/04/2017

A Short Call Condor is similar to Short Butterfly strategy. The only exception is that the difference of two middle strikes bought has different strikes.

When to initiate a Short call condor?

A Short Call Condor is implemented when the investor is expecting movement outside the range of the highest and lowest strike price of the underlying assets. Advance traders can also implement this strategy when the implied volatility of the underlying assets is low and you expect volatility to go up.

How to construct a Short Call Condor?

A Short Call Condor can be created by selling 1 lower ITM call, buying 1 lower middle ITM call, buying 1 higher middle OTM call and selling 1 higher OTM calls of the same underlying security with the same expiry. The ITM and OTM call strikes should be equidistant.

Strategy

Sell 1 ITM Call, Buy 1 ITM Call, Buy 1 OTM Call and Sell 1 OTM Call

Market Outlook

Significant volatility above higher and lower strikes

Motive

Anticipating price movement in the underlying assets

Upper Breakeven

Highest strike price - Net credit

Lower Breakeven

Lowest strike price + Net credit

Risk

Limited (if expires above lower breakeven point and vice versa)

Reward

Limited to Net premium received

Margin required

Yes

Let’s try to understand with an example:

Nifty Current spot price

9100

Sell 1 ITM call of strike price (Rs)

8900

Premium received (Rs)

240

Buy 1 ITM call of strike price (Rs)

9000

Premium paid (Rs)

150

Buy 1 OTM call of strike price (Rs)

9200

Premium paid (Rs)

40

Sell 1 OTM call of strike price (Rs)

9300

Premium received (Rs)

10

Upper breakeven

9240

Lower breakeven

8960

Lot Size

75

Net premium received

60

Suppose Nifty is trading at 9100. An investor Mr. A estimates that Nifty will move significantly by expiration, so he enters a Short Call Condor and sells 8900 call strike price at Rs 240, buys 9000 strike price of Rs 150, buys 9200 strike price for Rs 40 and sells 9300 call for Rs 10. The net premium received to initiate this trade is Rs 60, which is also the maximum possible reward. This strategy is initiated with a view of significant volatility on Nifty hence it will give the maximum profit only when there is movement in the underlying security below 8900 or above 9200. Maximum profit from the above example would be Rs 4500 (60*75). The maximum profit would only occur when underlying assets expires outside the range of upper and lower breakevens. Maximum loss would also be limited to Rs 3000 (40*75), if it stays in the range of higher and lower breakeven.

For the ease of understanding of the payoff schedule, we did not take in to account commission charges. Following is the payoff schedule assuming different scenarios of expiry.

The Payoff Schedule:

On Expiry NIFTY closes at

Net Payoff from 1 Deep ITM Call Sold (Rs) 8900

Net Payoff from 1 ITM Calls Bought (Rs) 9000

Net Payoff from 1

OTM Call bought (Rs) 9200

Net Payoff from 1 deep OTM Call sold (Rs.) 9300

Net Payoff (Rs)

8600

240

-150

-40

10

60

8700

240

-150

-40

10

60

8800

240

-150

-40

10

60

8900

240

-150

-40

10

60

8960

180

-150

-40

10

0

9000

140

-150

-40

10

-40

9100

40

-50

-40

10

-40

9200

-60

-50

-40

10

-40

9240

-100

90

0

10

0

9300

-160

150

60

10

60

9400

-260

250

160

-90

60

9500

-360

350

260

-190

60

9600

-460

450

360

-290

60

The Payoff Graph:

Impact of Options Greeks before expiry:

Delta: If the underlying asset remains between the lowest and highest strike price the net Delta of a Short Call Condor spread remains close to zero.

Vega: Short Call Condor has a positive Vega. Therefore, one should buy Short Call Condor spread when the volatility is low and expect to rise.

Theta: Theta will have a negative impact on the strategy, because option premium will erode as the expiration dates draws nearer.

Gamma: The Gamma of a Short Call Condor strategy goes to lowest if it moves above the highest or below the lowest strike.

Analysis of Short Call Condor spread strategy

A Short Call Condor spread is best to use when you are confident that an underlying security will move outside the range of lowest and highest strikes. Unlike straddle and strangles strategies risk involved in short call condor is limited.

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Long Call Calendar Spread

Long Call Calendar Spread
by Nilesh Jain 17/04/2017

A Long Call Calendar Spread is initiated by selling one call option and simultaneously buying a second call option of the same strike price of underlying assets with a different expiry. It is also known as Time Spread or Horizontal Spread. The purpose of this strategy is to gain from Theta with limited risk, as the Time Decay of the near period expiry will be faster as compared to the far period expiry. As the near period option expires, far month call option would still have some premium in it, so the option trader can either own the far period call or square off both the positions at same time on near period expiry.

When to initiate a Long Call Calendar Spread?

A Long Call Calendar Spread can be initiated when you are very confident that the security will remain neutral or bearish in near period and bullish in longer period expiry. This strategy can also be used by advanced traders to make quick returns when the near period implied volatility goes abnormally high as compared to the far period expiry and is expected to cool down. After buying a Long Calendar Spread, the idea is to wait for the implied volatility of near period expiry to drop. Inversely, this strategy can lead to losses in case the implied volatility of near period expiry contract rises even if the stock price remains at same level.

How to construct a Long Call Calendar Spread?

A Long Call Calendar Spread is implemented by selling near month at-the-money/out-the-money call option and simultaneously buying far month at-the-money/out-the-money call option of the same underlying assets.

Strategy

Buy far month ATM/OTM call and sell near month ATM/OTM call.

Market Outlook

Neutral to positive movement.

Motive

Hopes to reduce the cost of buying far month call option.

Risk

Limited to the difference between the premiums.

Reward

Limited if both the positions squared off at near period expiry. Unlimited if far period call option hold till next expiry.

Margin required

Yes

Let’s try to understand with an example:

Nifty Current spot price

9000

Sell near month ATM call strike price Rs.

9000

Premium received (per share) Rs.

180

Buy far month ATM call strike price Rs.

9000

Premium paid (per share) Rs.

250

Lot size (in units)

75

Suppose Nifty is trading at 8800. An investor, Mr. A is expecting no significant movement in near month contract, so he enters a Long Call Calendar Spread by selling near month strike price of 9000 call at Rs.180 and bought 9000 call for Rs.250. The net upfront premium paid to initiate this trade is Rs.70, which is also the maximum possible loss. The idea is to wait for near month call option to expire worthless by squaring off both the positions in near month expiry contract or reduce the cost of far month buy call by setting off the profit made from the near month call option. Another way by which this strategy can be profitable is when the implied volatility of the near month falls.

For the ease of understanding, we did not take into account commission charges. Following is the payoff chart of the expiry.

The Payoff Schedule on near period expiry date:

Near period expiry if NIFTY closes at

Net Payoff from near period Call sold (Rs.)

Theoretical Payoff from far period call Buy (Rs.)

Net Payoff at near period expiry (Rs.)

8700

180

-190

-10

8800

180

-160

20

8900

180

-120

60

9000

180

-70

110

9100

80

-10

70

9200

-20

+60

40

9300

-120

140

20

9400

-220

230

10

9500

-320

330

10

Following is the payoff schedule till far expiry, where maximum loss would be limited up to 320 Rs (250+70), Rs 70 is from near expiry and Rs 250 is the premium of far month call bought. Maximum profit would be unlimited since far month call bought will have unlimited upside potential.

Net Combined Payoff Schedule on next period expiry date:

NIFTY closing price on Near and Far period expiry

Theoretical Payoff from far period call Buy (Rs.)

Net Payoff at near period expiry (Rs.)

Net Payoff at Far period expiry (Rs.)

8700

-250

-10

-260

8800

-250

20

-230

8900

-250

60

-190

9000

-250

110

-140

9100

-150

70

-80

9200

-50

40

-10

9300

50

20

70

9400

150

10

160

9500

250

10

260

The Payoff Graph

Impact of option Greeks:

Delta: The net Delta of a Long Call Calendar will be close to zero or marginally positive. The negative Delta of the near month short call option will be offset by positive Delta of the far month long call option.

Vega: A Long Call Calendar has a positive Vega. Therefore, one should buy spreads when the volatility of far period expiry contract is expected to rise.

Theta: With the passage of time, if other factors remain same, Theta will have a positive impact on the Long Call Calendar Spread in near period contract, because option premium will erode as the near period expiration dates draws nearer.

Gamma: Gamma estimates how much the Delta of a position changes as the stock prices changes. The near month option has a higher Gamma. Gamma of the Long Call Calendar Spread position will be negative till near period expiry, as we are short on near period options and any major upside movement till near period expiry will affect the profitability of the spreads.

How to manage risk?

A Long Call Calendar spread is exposed to limited risk up to the difference between the premiums, so carrying overnight position is advisable but one can keep stop loss on the underlying assets to further limit losses.

Analysis of Long Call Calendar Spread strategy

A Long Call Calendar Spread is the combination of short call and long call option with different expiry. It mainly profits from Theta i.e. Time Decay factor of near period expiry, if the price of the security remains relatively stable in near period. Once the near period option has expired, the strategy becomes simply long call, whose profit potential is unlimited.

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7 Hacks To Lower Your Car Insurance Costs

7 Hacks To Lower Your Car Insurance Costs
by Divya Nair 01/06/2017

Buying a new car today might be cheaper than actually using one in our daily lives. The running cost of a car today is definitely higher than the day it was bought. While nothing can be done about the rising premiums on car insurance, we can certainly try cutting down the overall costs on our insurance covers.

Try These 7 Smart Ways To Save On Your Car Insurance Cost:

1. Accumulating NCB - Car owners can accumulate No Claim Bonus (NCB) by not claiming for minor repairs. Many insurance companies usually reduce premiums for the preceding year if you don’t make any claims in a year. Moreover, it is better to spend on your own on minor repairs than file a claim and lose the no-claim bonus.

2. Transferring NCB -

You can transfer your NCB when you sell your old vehicle and buy a new one. When getting your new car, all you have to do is inform your insurance provider that you wish to transfer your NCB. That done, the insurer will provide you with a certificate stating the details of the new car.

3. Apply For Discounts -

There are few insurance companies that offer discounts based on your age and profession. Make sure you apply for it.

4. Install Anti-Theft Devices -

People can also reduce the premium costs by installing smart anti-theft devices like alarms and tracking devices. By installing such safety devices, vehicle owners can get substantial discount.

5. Drop Unnecessary Add-On Covers -

We are often advised to buy the necessary add-on covers while buying a new car. But an add-on should not be bought only for the sake of buying it. One should drop any unnecessary add-on covers which will otherwise increase the premium costs.

6. Opt For Voluntary Deductible -

Vehicle owners can opt for a voluntary deductible and get further discount. But this also means that they will have to bear the claim cost upto the value of the deductible chosen.

7. Compare Quotes Online Before Purchasing -

It is wise to do an online comparison of policies from a number of companies before buying a policy. Most insurance companies offer lower premiums online. You may miss out on huge discount if you do not compare various plans.

Conclusion - With the rising cost of vehicles and changing lifestyles, car insurance cost is unlikely to go down in times to come. With these 7 ways mentioned above, we hope you will be able to lessen that extra cost on car insurance.

Buy a Car Insurance Cover Now!

Next Article

All About House Rent Allowance (HRA)

All About House Rent Allowance (HRA)
by Divya Nair 01/06/2017

House Rent Allowance (HRA) is the amount which your employer pays you towards the rent of your accommodation. Every salaried individual living in a rented flat is entitled to claim HRA to save on taxes. HRA is regulated by the provisions of Section 10(13A) of the Income Tax Act.

How Is HRA Decided?

It is decided based on the criteria like salary of the employee and the city of residence of the employee. If the employee resides in a metro city, then he/she is entitled to HRA almost equal to 50% of the salary. For others, HRA entitlement is 40% of the salary.

How To Use HRA To Save Income Tax?

A salaried individual can claim HRA exemptions only if these conditions are met: HRA is received as part of the salary package If an employee stays in a rented house rent paid is more than 10% of the salary.

How Much Of HRA Is Exempt From Income Tax?

The entitled HRA to an employee is not always fully exempt from tax. Employers take into consider the least of the below three heads to exempt tax - HRA received from the employer Actual rent paid less 10% of salary 50% of basic salary for those living in metro cities 40% of basic salary for those living in non-metro cities

Taxable HRA For Mr. X Who Lives In Mumbai
Basic Salary Rs 30,000
HRA Received Rs 13,000
Rent On Accommodation 1,44,000

Hence, Mr.X would get an HRA exemption of Rs 13,000 (the least among the three conditions). You can also save tax by paying rent to your parents, grandparents even if they do not have taxable income. In this case, they will act as your landlord, but the owner of the house should be the one whose name is furnished in the rent receipt.

Documents Required To Claim HRA Benefit -

If the HRA claim is just upto Rs 3,000/month, employees need not furnish any documents. But for amount exceeding this limit, the following documents need to be submitted to the employer -

Rent Receipts:

For HRA tax exemption, employees need to affix a one rupee revenue stamp on rent receipt with details of rented house and landlord like address of rented house, landlord name, amount of rent etc. The rent receipt has to have the signature of the landlord.

Rental Agreement In Some Cases:

If the rent exceeds Rs 15000/month, then PAN details of the landlord is mandatory for claiming HRA exemption.

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5 Stocks Recommendation For Feb 25th, 2019 – Mar 1st , 2019

Stock recommendations
by Gautam Upadhaya 21/07/2017

1) Balkrishna Industries Ltd - Buy

 

Stock Balkrishna Industries Ltd
Recommendation The stock has witnessed a breakout from its sideways consolidation
backed by an uptick in volumes on the daily chart. It has also shown
positive momentum on the daily MACD-Histogram, an indication that
the uptrend will continue in the short term.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs850-855 Rs892 Rs827
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
BALKRISIND 16543 Rs1467/741 Rs987

 

2) REC Ltd - Buy

 

Stock REC Ltd
Recommendation The stock has witnessed a consolidation breakout backed by an uptick
in volumes on the weekly chart. Derivative data indicates fresh long
positions in the stock.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs131-133 Rs139 Rs127.8
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RECLTD 26068 Rs148/89 Rs119

 

3) Mahindra & Mahindra Ltd - Buy

 

Stock Mahindra & Mahindra Ltd
Recommendation The stock has witnessed a rounding bottom formation and has managed
to close above its 10-DEMA, short-term resistance level on the daily charts.
It has also formed a bullish hammer candlestick on the weekly charts.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs641-647 Rs672 Rs625
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
M&M 80272 Rs992/615 Rs771

 

4) Raymond Ltd - Buy
 

Stock Raymond Ltd
Recommendation The stock has witnessed a breakout above its resistance levels backed by an uptick in volumes on the daily charts. It has also shown strong momentum on the daily MACD-Histogram.
Buy/Sell Range Target Stop Loss
Buy (Cash) Rs721-728 Rs755 Rs705
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
RAYMOND 4478 Rs1151/593 Rs806

 

5) HDFC Bank Ltd - Sell

 

Stock HDFC Bank Ltd
Recommendation The stock has formed a bearish engulfing candlestick pattern backed by an uptick in volumes on the daily chart. Derivative data indicates fresh short positions in the stock.
Buy/Sell Range Target Stop Loss
Sell (March Futures) Rs2105-2120 Rs2030 Rs2164
NSE Code Market Cap (in Rs cr) 52-week high/low 200-Day EMA
HDFCBANK 569029 Rs2219/1830 Rs2041

 

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