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Collar Vs Short Condor (Short Call Condor) Options Trading Strategy Comparison

Compare Collar and Short Condor (Short Call Condor) options trading strategies. Find similarities and differences between Collar and Short Condor (Short Call Condor) strategies. Find the best options trading strategy for your trading needs.

Collar Vs Short Condor (Short Call Condor)

  Collar Short Condor (Short Call Condor)
Collar Logo Short Condor (Short Call Condor) Logo
About Strategy A Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... Read More A Short Call Condor (or Short Condor) is a neutral strategy with a limited risk and a limited profit. The short condor strategy is suitable for a high volatile underlying. The goal of this strategy is to profit from a stock price moving up or down beyond the highest or lowest strike prices of the position. The strategy is similar to Short Call Butterfly strategy with the difference being in the strike prices selected. Suppose Nifty is currently trading at 10,400. If the trader is expecting high volatility in the index due to specific events i.e. budget, results, and elections, he could choose the Short Condor strategy to profit in such a market scenario. The strategy could be constructed as below: Short Condor Options Strategy ... Read More
Market View Bullish Volatile
Strategy Level Advance Advance
Options Type Call + Put + Underlying Call
Number of Positions 3 4
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Price of Features - Call Premium + Put Premium

When and how to use Collar and Short Condor (Short Call Condor)?

  Collar Short Condor (Short Call Condor)
When to use?

The Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses.

The Short Call Condor works well when you expect the price of the underlying to be very volatile. In other words, when the trader is anticipating massive price movements (in any direction) in the underlying during the lifetime of the options.

Market View Bullish

When you are of the view that the price of the underlying will move up but also want to protect the downside.

Volatile

When you are unsure about the direction in the movement in the price of the underlying but are expecting high volatility in it in the near future.

Action
  • Buy Underlying
  • Buy 1 ATM Put Option
  • Sell 1 OTM Call Option

Buy ITM Call Option + Buy OTM Call Option + Sell Deep OTM Call Option + Sell Deep ITM Call Option

Suppose Nifty is trading at 10,400. If you expect high volatility in the Nifty in the coming days then you can execute Short Call Condor by selling 1 ITM Nifty Call at 10,200, buying 1 ITM Call at 10,300, buying 1 OTM Call Option at 10, 500 and selling 1 OTM Nifty Call at 10, 600. Your maximum loss will be if Nifty closes in the range of 10,300 to 10,500 on expiry while maximum profit will be on either side of upper or lower strikes.

Breakeven Point Price of Features - Call Premium + Put Premium

There are 2 break even points in this strategy. The upper break even is hit when the underlying price is equal to the difference between strike price of highest strike shot call and net premium paid. The lower break even is hit when the underlying price is equal to the strike price of lowest strike short call and net premium paid.

Lower Breakeven = Lower Strike Price + Net Premium

Upper breakeven = Higher Strike Price - Net Premium

Compare Risks and Rewards (Collar Vs Short Condor (Short Call Condor))

  Collar Short Condor (Short Call Condor)
Risks Limited

You will incur maximum losses when price of the underlying is less than the strike price of the Put Option.

Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received

Limited

This is a limited risk strategy. The maximum risk in a short call condor strategy is calculated as below:

Max Loss = Strike Price of Lower Strike Long Call - Strike Price of Lower Strike Short Call - Net Premium Received + Commissions Paid

The max risk is when the price of the underlying remains in between strike price of 2 long calls.

Rewards Limited

You will incur maximum profit when price of underlying is greater than the strike price of call option.

Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received

Limited

The maximum profit in a short call condor strategy is realized when the price of the underlying is trading outside the range at time of expiration.<.p>

Max Profit = Strike Price of Lower Strike Short Call - Strike Price of Lower Strike Long Call - Net Premium Paid

Maximum Profit Scenario

Underlying goes up and Call option exercised

All options exercised or not exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Both ITM Calls exercised

Pros & Cons or Collar and Short Condor (Short Call Condor)

  Collar Short Condor (Short Call Condor)
Advantages

It protects the losses on underlying asset.

It allows you to profit from highly volatile underlying assets moving in any direction.

The maximum profit for the condor trade may be low in relation to other trading strategies but it has a comparatively wider profit zone.

Earn profit with little or no investment as you will have a credit of net premiums.

Disadvantage

The profit is limited

Strike prices selected may have an impact on the potential of profit.

Brokerage and taxes make a significant impact on the profits from this strategy. The cost of trading increases with the number of legs. This strategy has 4 legs and thus the brokerage cost is higher.

Simillar Strategies Covered Put Bull, Call Spread, Bull Put Spread Long Put Butterfly, Short Call Condor, Short Strangle