Strategies · Library · Options
§2.46Volatility
Long call condor
Buy calls at the lowest and highest strike and sell calls at the two middle strikes, all evenly spaced, for a small debit. It profits if the price finishes in a band between the middle strikes.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Neutral: expects a calm market that ends in a range, a bit wider than a butterfly's target.
- Entry and exit
- Buy a call at the lowest strike, sell one at the second, sell one at the third, buy one at the fourth, same expiry, for a small net debit. Hold to expiry or close once the profit zone is reached.
- Sizing
- 1 long, 1 short, 1 short, 1 long across four strikes
How it fails
- Loss is capped at the net premium, suffered if the price ends beyond either outer strike
- Profit is a flat plateau between the middle strikes, lower than a butterfly's peak
- Time decay helps once inside the band
Data it needs
- options chain with strikes and premiums
- implied volatility
- underlying daily price
ARCANE has the underlying daily close but no options chains or implied volatilities
How ARCANE uses it
A Call that a stock ends inside a stated price range on a date matches this view; paper only.
Needs options; a range-bound payoff cannot be built from long-only holdings.
Filed under the volatility card
Hold less after a month of high volatility and more after a calm one. The paper found this raised return per unit of risk, because volatile spells are not paid for with higher returns.
A paper plan from this card holds 5 to 63 days, stops at 2.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.46, p. 35 of the SSRN version. Described in our words. Volatility is ARCANE’s filing, not the book’s.