A Long Call Condor is established by a nearest ITM Bull Call Spread and a nearest OTM Bear Call Spread. The maximum profit can only be achieved if the underlying stock price is in between the two spread. This make it only possible if for stocks that is trading at range bound.

Scenario #1 – If you are expecting AAPL to be trading at range bound (which is not likely, this is only for illustration) and there is a possibility that AAPL will be in between $150 to$155 at expiration, a Long Call Condor will be constructed as follows;

ac1.jpg

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From the Profit and Risk profile, for every contract the maximum risk is $90.00 and the maximum profit is $410.00, a maximum ROI of 455%.

You will not be able to establish this kind of a return with low volatile stocks because for AAPL the volatility is very high and hence the two legs that you sold for the credit are being inflated by the IV making the cost lower.

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Scenario #2 - By looking at AAPL price chart, say you are bullish on the stock and it may hit a double top or maybe a pull back to form a “cup and handle” formation with the possibility of the stock price to be at $ 190 to $195 when it expires in May.

 

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A far OTM Long Call Condor will be constructed as follows with strike price of $185, $190, $195 and $200.

ac2.jpg

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From the Profit and Risk profile, for every contract the maximum risk is only $30.00 which is at market, you may be able to get in at a lower entry price. The maximum profit is now $470.00, making it a whopping maximum ROI of 1566%.

Off course you may not be able to make such accurate predictions, but nevertheless, since the risk is so low you can afford take a gamble. I personally think that for those who like the excitement of playing earnings gapping, you can try this even if you are wrong you at least you do not have to bleed.

Even when AAPL do reach the anticipated price and it is still not close to expiration yet, you can still sell the entire position and take whatever profit that is available. The profits will be much lesser as you need the time decay to work for you. The closer to expiration the better is the profits.

“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed” - Benjamin Graham

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