Short Condor (Short Call Condor) Vs Short Box (Arbitrage) Options Trading Strategy Comparison

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.

Being risks free arbitrage strategy, this strategy can earn better return than earnings in interest from fixed deposits for any investor. The earning from this strategy varies with the strike price chosen by the trader. i.e. Earning from strike price '10400, 10700' will be different from strike price combination of '9800,11000'.

The short box strategy should be used when the component spreads are overpriced in relation to their expiration values. In most cases, the trader has to hold the position till expiry to gain the benefits of the price difference.

Note: If the spreads are underpriced, another strategy named Long Box (or Box Spread) can be used for a profit.

This strategy should be used by advanced traders as the gains are minimal. The brokerage payable when implementing this strategy can take away all the profits. This strategy should only be implemented when the fees paid are lower than the expected profit.

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.

The market view for this strategy is neutral. The movement in underlying security doesn't affect the outcome (profit/loss). This arbitrage strategy is to earn small profits irrespective of the market movements in any direction.

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.

• Buy Call Option 2
• Sell Call Option 1
• Buy Put Option 2
• Sell Put Option 1 (2>1)

Say for XYZ stock, the component spread is relatively overpriced than its underlying. You can execute execute Short Box strategy by selling 1 ITM Call and 1 ITM Put while buying 1 OTM Call and 1 OTM Put. There is no risk of loss while the profit potential would be the difference between two strike prices minus net 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

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.

The Short Box Spread Options Strategy is a relatively risk-free strategy. There is no risk in the overall position because the losses in one spread will be neutralized by the gains in the other spread.

The trades are also risk-free as they are executed on an exchange and therefore cleared and guaranteed by the exchange.

The small risks of this strategy include:

1. The cost of trading - Some brokers charges high brokerage/fees, which along with the taxes could make the overall loss-making trade.
2. The box spread can be liquidated by an offsetting transaction easily and transparently on an exchange with minimal loss/profit.

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

The reward in this strategy is the difference between the total cost of the box spread and its expiration value. Being an arbitrage strategy, the profits are very small.

It's an extremely low-risk options trading strategy.

All options exercised or not exercised

Both ITM Calls exercised

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.

1. In short box, you are taking money in, so there's no capital tied up.
2. This is an Arbitrage strategy. This strategy is to earn small profits with very little or zero risks.

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.

1. It's a professional strategy and not for retail investors. The opportunities are closely monitored by High-Frequency algorithms. These arbitrage opportunities are usually for the high-frequency algorithms and need large pools of money to make it worth it and usually with better brokerage commission schemes.
2. This strategy has high margin maintenance requirements and in many cases, the trader won't have the margin available to do that.
3. For retail investors, the brokerage commissions don't make this a viable strategy. Only low-fee traders can take advantage of this.
4. In theory, this strategy sounds good but in reality, it may not as profits are small.
5. Locking the box - Trader has to wait until to expiry by keeping the money stuck in the box.

• Box Spread or Long Box