Strategies · Library · Options
§2.48Volatility
Short call condor
Sell calls at the lowest and highest strikes and buy calls at the two middle strikes, evenly spaced, for a small credit. A bet the price will end outside the range, with a small reward.
- Asset class
- Options
- Held for
- To expiry
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Expects a breakout from a range in either direction.
- Entry and exit
- Sell a low call, buy the next two calls, sell the highest call, same expiry, for a credit. Hold to expiry or exit after a breakout.
- Sizing
- 1 short, 1 long, 1 long, 1 short across four strikes
How it fails
- Maximum gain is the credit, collected only if the price finishes outside the outer strikes
- Maximum loss is the spacing less the credit, if the price ends between the two middle strikes
- Quiet markets let the long calls decay
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 an asset breaks out of a range by a date, direction unspecified, matches this view; paper only.
Needs options; a payoff against a trading range cannot be copied by 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, §2.48, p. 36 of the SSRN version. Described in our words. Volatility is ARCANE’s filing, not the book’s.