RUT March Iron Condor

Trending markets are not good friends of Income traders especially the markets that jumps in either direction too quickly. I had talked about Iron condor briefly here, that an iron condor works best when market remains in defined zones or continue sideways action. Few weeks back I opened a RUT iron condor that I shared with the OP readers here, this iron condor while still profitable, may soon be threatened on the call side. Put side has already given good amount of credit and is nearing my exit point.

As you may know, opening an Iron condor is not that difficult at all. The real fun lies in how does one adjust the trade. Seems like RUT is going to challenge, now that’s where serious money is involved, so let the fun begin.

Cheers and profitable trade, OptionPundit






2 responses to “RUT March Iron Condor”

  1. MikeN Avatar

    On 2/26 I put on the trade for a $2.13 credit. If I’m expecting RUT to break 852, I could buy an 850/860 call vertical @ $1.25, leaving me a net credit of $.88. This will cap my profit at $88 per position on the upside and increase my risk by $88 on the downside.

    I’m inclined to “let it ride”. It was a good trade, well thought out and put on at a fair price. I didn’t risk more than I am comfortable losing for a 68% probability of making at least $.01 on the trade, it had a wide market and, although in an upward trend, we bought it when the trend had slightly “flattened out” so I realized the potential for RUT to continue the uptrend.

    As I learned with Tom Preston’s Monkey Brains monthly SPX condors in Feb, iron condors can be nail biters up until a settlement price is announced. For condors, Preston advocates finding a good, fairly priced trade and sticking with it.

    On the other hand, an $88 return is still acceptable based on my personal risk/reward matrix, so I’d like to hear other thoughts.

  2. chiu Avatar

    Mike, you put on a trade on 2/26 with Iron Condor for a $2.13 credit. You make money with time decay when the underlying stays within the two sell leg range.

    If the underlying makes a slow move towards either sell leg, your position is still ok as the time decay is helping you. If the move towards either sell leg is rapid, even it has not touched the sell leg, your position will show paper loss (delta is against you). So it is not the case that you will always have net credit when it moves.

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