Options Trade #18 - QQQ Iron Condor

Updated: Dec 6, 2018

VTS Community,

* New Discretionary Options trade today *

While volatility isn't what we consider high, it's just high enough that we can start dipping a toe in the Iron Condor pool.  Remember Iron Condors are vega negative trades which means that they benefit from a declining volatility environment.  It's not a good idea to open them when volatility is already low because that opens the trader up to taking losses if that changes.  Also if you enter trades with higher volatility you can stretch the wings of the condor out a little wider and cover a nice area of future potential movements.

Nasdaq (QQQ) with our short strikes drawn:

You can see with this trade were able to get our short strikes well above all-time highs and well below the 200-day moving average.  We definitely won't wait until it reaches either of those before closing it, but it's a good entry point for a trade.

The Trade:Iron Condor on QQQ

Buy to Open 10 x 16 Nov 18' QQQ 160 Put Sell to Open 10 x 16 Nov 18' QQQ 165 Put Sell to Open 10 x 16 Nov 18' QQQ 195 Call Buy to Open 10 x 16 Nov 18' QQQ 200 Call Credit:  ~ 0.94 Days to expiry:  67

* prices move around, so just get the highest premium you can

Margin Requirement: 1 option contract  =  100 shares The margin requirement is the strike gap minus the premium (5.00  -  0.94)  *  100  =  406 per contract 10 contracts  *  406  =  4,060 margin requirement

The VTS Discretionary Options model portfolio is at 26,035.35 4,060 margin is 15.6% of the portfolio

* You can scale your trade to roughly 15% of your VTS Discretionary Options funds

Stop-loss: I don't use hard stop-losses for Iron Condors.  Instead, I have developed a proprietary method of measuring the risk-reward profile day to day and determining if it's still advantageous to remain in the trade or close it.

However as a rough estimate, we typically stop-loss out of trades at 1.3 - 1.6 x the premium collected.  

So if the 0.94 premium we collect for the trade rises to about 1.41 we will consider closing it for a loss.

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