Options Trade #33 - SPX Iron Condor



VTS Community,

It's a good time to get into an old favourite of mine, within the VTS Discretionary Options Strategy, an Iron Condor. Beyond just the coolest sounding name for any option trade, they are quite effective during periods of increased volatility because the width of the wings can be increased to cover a pretty substantial area of potential future price movements. 

The big enemy to an Iron Condor is a strongly trending market.  Significant moves up or down will trigger stop-losses.  However the upside right now does seem limited with so many headwinds facing the market.  And on the other side, the ol' "plunge protection team" seems to be doing their job of late so the downside may be limited for now as well.  Seems a very good time to play the middle ground and bet on a choppy market going forward.

The Trade: 


Iron Condor on SPX  (S&P 500 Index)

BUY to OPEN 2 x 15 Mar 19' SPX 2400 Put SELL to OPEN 2 x 15 Mar 19' SPX 2425 Put SELL to OPEN 2 x 15 Mar 19' SPX 2850 Call BUY to OPEN 2 x 15 Mar 19' SPX 2875 Call Credit:  ~ 3.30 Days to expiry:  49

* 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 (25.00  -  3.30)  *  100  =  2,170 per contract 2 contracts  *  2,170  =  4,340 margin requirement

The VTS Discretionary Options model portfolio is reset for 2019 at 25,000.00

4,340 margin is 17.36% of the portfolio

* You can scale your trade to roughly 15 - 20% 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, I typically stop-loss out of trades at 1.3 - 1.6 x the premium collected.  

So if the roughly 3.30 premium I collect for the trade rises to about 4.80 I will consider closing it for a loss.


Today's SPX Iron Condor




Basic Iron Condor video explanation:



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