It doesn’t feel like it, but December is only 2 months away. That means it’s time to deploy some iron condors.
Sell to open Dec 1700/1690 bull put spread for 1.00
Sell to open Dec 2040/2050 bear call spread for 1.00 — HALF SIZE
This simply means for every 2 bull put spreads you sell, only put on 1 bear call spread.
We do this so that as the SPX rallies we can add to the bear call spread side for a better credit.
Current return on risk sits at 17%, but that will increase as we add to the call side.
Update: Oct 30th, 2014
SPX has rallied hard and looks ready to break above the 2000’s again.
If I had done a normal iron condor I would be in a lot of pain, but because I recognized that the upside risk is the biggest risk, I’m still sitting right around breakeven.
The call spread (2040/2050) does look a little tenuous here, so what we are going to do is ROLL and ADD to our call spreads.
Do note that this does NOT change any of the margin characteristics of the trade. We are just adding a little more upside risk in exchange for widening out our breakeven and getting better odds.
Here’s the trade:
Buy to close SPX Dec 2040/2050 call spreads at 2.80
Sell to open FULL SIZE Dec 2070/2080 call spreads at 1.50
This keeps us around the same directional exposure but it doubles our theta.
The upside risk still is the biggest risk here. If I need to make another adjustment, I will roll the put spread higher for a credit and use that cash to buy some hedges.
Update: Dec 4th, 2014
This is yet another iron condor that’s gotten away from me with respect to the upside risk. I’m now going to “lock in” a higher loss to reduce mt directional exposure and increase my theta.
1. Buy back the Dec 1700 put @ 0.20 – this is done to free up margin. You don’t have to close out the entire put spread, just the short option.
2. Sell to open Dec 2000/1990 put spread for 0.70. This will reduce our odds but help to pay for the call side roll.
3. Buy to close Dec 2070/2080 call spread AND
Sell to open Dec 2090/2100 call spread
Trade part 3 is known as a “condor roll” where we are effectively rolling the spread higher. It will reduce our upside risk, increase our odds, but basically lock in a loss.
Trade Expired Worthless.
Margin and P/L
Spread Width: 10000
10 Put Spreads @ 1.00 = 1000
5 Call Spreads @ 1.00 = 500
Close 5 Dec 2040/2050 Call Spreads @ 2.80 = +1400
Open 10 Dec 2070/2080 Call Spreads @1.50 = -1500
New Margin: 8400
Close 10 Dec 1700 Put @ 0.20 = +200
Open 10 Dec 2000/1990 Put Spread @ 0.70 = -700
Roll 10 Call Spreads @2.50 = +2500
New Margin: 10,400
Put Spread #1 P/L
Sell to Open 10 SPX Dec 1700/1690 Put Spread @1.00
Close 1700 Put @0.20
Call Spread #1 P/L
Sell to Open 5 SPX Dec 2040/2050 Call Spreads @1.00
Put Spread #2 P/L
Sell to Open 10 SPX Dec 2000/1990 Put Spreads @0.70
Call Spread #2 & #3 P/L
Sell to Open SPX Dec 2070/2080 Call Spreads @1.50
Roll to SPX Dec 2090/2100 Call Spread @2.50
Put Spread #1: $800
Call Spread #1: -$900
Put Spread #2: +$700
Call Spread #2 & #3: -$1,000
Total P/L: -400
Return on Risk: -3.8%