Now you may be thinking…
“The Market Just Crashed and Volatility is Hot, Why Would I Put On New Income Trades?”
Well, yes. That is a concern.
Keep in mind that implied volatility has also exploded, which means you can get better premiums and sell wider strikes on iron condors.
But, whenever VIX is >20 it also means the actual vol in the market is running hot. We can easily see 1% gaps both to the upside and downside.
While many are expecting hard continuation with price targets in the 1700’s… I think that the odds of this are not that great, especially in the next month.
The way to not worry so much about the vol is to scale into the trade.
Here’s what we will do.
Enter into this SPX iron condor at half your normal position size. If/when SPX moves big in one direction or the other, you will roll the losing side out in price… and DOUBLE the size. That way you will end up at your normal position size but you’ll be scaling into the trade.
The roll normally costs money but since you add size the cost of the roll will be negligible.
Here’s the initial trade:
Markets are moving around a bit here but 2.80 would be the lowest fill you should go for.
REMEMBER– half size on both sides.
Now, if/when we see 2000 OR 1820, we will roll and add to the losing side.
Update: October 9th, 2015
Once again we discover how the upside risk can be a big risk in options trading.
Luckily we planned for a stupid move by going half size.
Now we can roll and double size on the call side.
The roll will be “cost free” in terms of keeping reward the same, but it will increase the max risk to the upside.
Buy to close SPX Nov 2050/2060 Call Spread @3.90
Sell to open **2x** SPX Nov 2085/2095 Call Spread @2.10
You want to buy to close BEFORE you sell to open.
Here’s the risk after:
Update: November 10th, 2015
The past month has been the strongest rally we’ve seen since 2011.
Because of this and how iron condors work, the biggest risk is a rip higher like we’ve seen. That has left this trade in a nasty position with a ton of upside risk.
We’re going into salvage mode here– roll the trade out three weeks and go full size on the put side.
Here’s the trade:
Buy to Close Nov 1720/1710 Put Spread @0.10
Buy to Close Nov 2085/2095 Call Spread @4.70
Sell to Open FULL SIZE Dec1 1990/1980 Bull Put Spread @1.10
Sell to Open FULL SIZE Dec1 2140/2150 Bear Call Spread @1.20
Options expired worthless.
First Put Spread Sale
Sell to Open 5 Nov 1720/1710 Put Spreads @1.15
Close Spreads @0.10
First Call Spread Sale
Sell to Open 5 Nov 2050/2060 Call Spreads @1.80
Buy to Close 5 Nov @3.90
Second Call Spread Sale
Sell to Open 10 Nov 2085/2095 Call Spreads @2.10
Buy to Close 10 Nov 2085/2095 Call Spreads @4.70
Second Put Spread Sale
Sell to Open 10 Dec1 1990/1980 Put Spreads @1.10
Third Call Spread Sale
Sell to Open 10 Dec1 2140/2150 Call Spreads @1.20
First Put Spread: $525
First Call Spread: -$1050
Second Call Spread: $-2600
Second Put Spread: $1,100
Third Call Spread: $1,200