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Iron Condor (RUT) : Mar 07 (New Trade)

Published on February 3, 2007

Iron Condor (RUT) : Mar 07 (New Trade)

February 3, 2007

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.

 rut-march-2007.png 

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.

8 Comments

  • Avatar 3heart says:

    OptionPundit,

    Why is a 5-6 weeks IC is your choice? why not 7 weeks or 2 months?

    Best Regards,

    3heart

  • Avatar optionpundit says:

    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

  • Avatar 3heart says:

    Thanks, OptionPundit. I believe if a strategy is successful there is always a scientific support there although we haven’t found it.

  • Avatar Jason says:

    If you don’t mind me asking what is the charting software that you are using in the above example

  • Avatar Tom Landess says:

    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?

  • Avatar OptionPundit says:

    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.

  • Avatar Tom Landess says:

    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?

  • Avatar OptionPundit says:

    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.

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