This trade is now open for viewing/reading to broad OP readers.
After playing speculative strategies during the last 2 week of earning season, I am back to my bread-n-butter strategy. In this Iron Condor, I am selling the RUT March 850 calls and 760 puts and buying the March 860 calls and 750 puts for a net credit of $2.25.
- Trade Price: I received $2.25 credit for this trade.
- Underlying: RUT roughly $808
- Trade Risk: Total margin required is $775 per Iron Condor
- Trade Duration: Till March 15 or before.
This Iron condor is quite market-neutral at this point (rather slightly negative delta). There is about a 16% chance that the RUT will close above $850 at March options expiration, and a 14% chance that the RUT will close below the $760 level at March options expiration. The potential risk to reward with trade is 29% for holding till March 15 or before (if RUT remains between 850 and 760 by March options expiration). I shall be continuously monitoring this position for the best time to either adjust or close depending upon the price of the options and the underlying shares of the RUT.
Disclaimer : As with other posts, this is not an advisory. These are my personal trades that I open for viewing. Please read the legal notices and disclaimer here for details.
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{ 8 comments… read them below or add one }
OptionPundit,
Why is a 5-6 weeks IC is your choice? why not 7 weeks or 2 months?
Best Regards,
3heart
3heart, it’s based on experience, fill and character of the underlying. I have been trading RUT for quite a while and I have noticed 5-6wks is a good time to open my trade.There is no scientific logic behind it.
BTW, for your information my order was filled after 3 days for being in the queue. These are some points that one learns over a period of time by being on the “dance floor”.
Hope this helps,
OptionPundit
Thanks, OptionPundit. I believe if a strategy is successful there is always a scientific support there although we haven’t found it.
If you don’t mind me asking what is the charting software that you are using in the above example
Using this calculator…
For the 860-850 BCS, you need $865.
For the 750-760 BPS, you need $910.
Doesn’t it cost $910 per IC with an option-friendly broker?
Tom, I looked at the calcutor and I am not sure what is your question? are you saying that when you open this trade now it currently cost $910 i.e. only $0.90 premiium is available. If yes, then it is not correct. As per the prices clsoed last night, this Iron condor is selling for $1.35 that means it costs $865. However I opened this trade some time back and that time it costed only $775. I have in fact already earned 40% of premium.
Sorry for the confusion, let me clarify. When you opened this IC two weeks ago, I believe these were the values as of Feb 2:
Mar 860 Call @ 1.35
Mar 850 Call @ 2.70
Mar 760 Put @ 3.86
Mar 750 Put @ 2.96
Total credit = $2.25
As of Feb 16,
Mar 860 Call @ .57
Mar 850 Call @ 1.50
Mar 760 Put @ 1.15
Mar 750 Put @ .70
Total credit = $1.38
So in two weeks,
1) there is a gain of .87 per IC (2.25 – 1.38 = .87).
2) % of max credit so far = .87 divided by 2.25 ==> 38.7%
(about 40%… yes, I agree)
Using that calculator, the IC would’ve cost $910 per IC, not $775. Is that correct?
Tom, I think you are looking at it half baked. Because when I looked at the trade individual i.e. BCS and BPS the requirements were $865 and $910. However, when doing an Iron condor you need to look at the overall position. So when you combine the two, $135 credit from Bear Call ($1000-$865) and $90 ($1000-$910) credit from Bull Put. Thus overall credit $225 ($135+90) and hence the cost is $775 ($1000-$225). Hope that helps.