SPX 21 JUL Iron Condor (544)

IncomeLab Forum Forums Income Lab SPX 21 JUL Iron Condor (544)

This topic contains 13 replies, has 2 voices, and was last updated by  Igor 1 year, 11 months ago.

Viewing 14 posts - 1 through 14 (of 14 total)
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  • #7988

    Igor
    Keymaster

    SPX at 2398
    VIX at 10.86

    We’re going to put on an Iron Condor in 21 JUL MONTHLY expiration cycle with 59 days until expiration. We’re selling:

    SPX 2270/2260 Bull Put spread
    SPX 2485/2495 Bear Call spread

    Short strike on the put side has a delta around 15 and the short call delta around 10.
    These are 10 point wide credit spreads.

    Risk Profile:

    Our Max Allowable Loss (MAL) is around 1.5 times total credit. If total credit is $1.70 then MAL is $2.55
    Our first profit target is 50% of credit in 25 days or less.
    We’re going to manage this position when short put delta reaches 25 or short call delta reaches 20

    Using OTM options as ahedge: https://youtu.be/Etu1JFeXMSs

    IncomeLab Order Ticket
    Type Asset Duration Strike C/P
    BTO SPX 21 JUL 17 2495 Call
    STO SPX 21 JUL 17 2485 Call
    STO SPX 21 JUL 17 2270 Put
    BTO SPX 21 JUL 17 2260 Put
    Total Credit: $1.70-$1.80


    #7995

    Igor
    Keymaster

    Igor – a great initiative having a short video!

    A Quick Comment – It might be useful to split your videos into:
    1) – those that are thinkorswim driving lessons
    2) – those that relate to your specific decision-making on the Iron Condor – so we can learn the detail from you.

    A number of your followers would use different brokers. I use IB for instance.

    Whilst there is plenty of material around on how to open up an iron condor – it would be great to get some detail on your specific approach – ie reasons for decisions on deltas, distance from the underlying and duration.

    Maybe thinkorswim driving lessons could go to a more permanent general area.

    I find your work very helpful.

    Many thanks

    #7996

    Igor
    Keymaster

    Thank you for your feedback!

    #8031

    Igor
    Keymaster

    SPX at 2430.

    2485 Call is 20 delta and it’s time for an adjustment. The first thing I’m going to do is figure out my NET delta of this position.

    My NET delta is -53. I’m going to cut 2/3 of this directional exposure by buying OTM options in the same expiration cycle (49 DTE). 53/3*2 is how I figure out how much delta I need to add to this IC. I’m going to need to add about 35 delta. I’m going to use (4) 8 delta calls (2520 strike). Buying FOUR 8 delta calls will add 32 delta to this IC and will reduce NET detla from -53 to -21. This is what P/L graph looks like after this adjustment.

    IncomeLab Order Ticket
    Type Asset Duration Strike C/P
    BTO SPX 21 JUL 17 2520 Call
    Total Debit: $2.20

    #8044

    Igor
    Keymaster

    Igor
    – A quick question – would it have been a neater solution to have bought back some of the 2485 CALLs that you sold as part of the original IC?
    – One would then be left with the original Bull PUT – plus a Ratio Backspread on the CALL side. Ratio Backspreads seem to be neat, flexible and easily managed with a changing Delta environment.
    – Many thanks

    #8048

    Igor
    Keymaster

    In my opinion, there isn’t a big difference between buying OTM options and buying back one of the short options of a bear call spread. This is what this IC looked like at the time when an adjustment needed to be made:

    Buying back one of the short 2485s would look like this:

    And buying several OTM calls would look like this:

    This IC NET delta before adjustment was -55. I wanted to remove 2/3 or 60% of my NET exposure. 60% of 55 is 33, so I needed to add 33 deltas to this IC to lift my T+0 line. 2485 was a delta 20 at the time and buying back 1 call wouldn’t cut NET delta enough for me. I went with buying (4) 8 delta calls. I like to use OTM options to cut delta because if the underlying makes a sharp move higher those options will gain value quick (due to gamma) and those profits will help me offset the cost of rolling up the call spread that’s under pressure.

    #8059

    Igor
    Keymaster

    Igor
    – As usual the detail was extremely helpful.
    – Clearly as you state there is not much difference – So it is probably personal preference.
    – What I find very powerful is how easily the shape of the Risk Curve can be changed – just by how many Deltas are added.

    – Many thanks

    #8062

    Igor
    Keymaster

    That’s the name of the game – keep that T+0 line in check and dont let it sink too deep 🙂

    #8063

    Igor
    Keymaster

    We’re going to BUY TO CLOSE 2270/2260 BPS here. This will leave 2485/2495 (hedged) bear call spread.

    P/L graph

    IncomeLab Order Ticket
    Type Asset Duration Strike C/P
    BTC SPX 21 JUL 17 2270 Put
    STC SPX 21 JUL 17 2260 Put
    Total Debit: $0.30

    #8080

    Igor
    Keymaster

    We’re going to add a put spread here to balance this Iron Condor.

    SELL TO OPEN 2340/2330 Bull Put spread

    IncomeLab Order Ticket
    Type Asset Duration Strike C/P
    STO SPX 21 JUL 17 2340 Put
    BTO SPX 21 JUL 17 2330 Put
    Total Credit: $0.70

    P/L graph

    #8087

    Igor
    Keymaster

    Igor – The Bear CALL is still hedged. Should it still remain that way?
    – Many thanks

    #8098

    Igor
    Keymaster

    Yes, we’re going to leave those OTM calls and IF SPX starts to ramp higher we may need to add some more upside hedge.

    #8122

    Igor
    Keymaster

    We’re going to cut our NET delta exposure again as original OTM call hedges lost some of its value and delta has decayed in those options. We’re going to look at our NET delta for all options of this trade and use 28JUL (36DTE) cycle to cut our NET delta by 50%.

    This is what our current P/L graph looks like

    Our current NET delta is about -30. We’re going to pick up +15 delta by buying (2) 28JUL 2505 calls and this will reduce our NET delta from -30 to about -15 and will lift our T+0 line on the upside.

    IncomeLab Order Ticket
    Type Asset Duration Strike C/P
    BTO SPX 28 JUL 17 2505 Call
    Total Debit: $2.00

    #8220

    Igor
    Keymaster

    We’re going to BUY TO CLOSE this Iron Condor, leaving OTM call hedges to either expire or close for what they’re worth

    IncomeLab Order Ticket
    Type Asset Duration Strike C/P
    STC SPX 21 JUL 17 2495 Call
    BTC SPX 21 JUL 17 2485 Call
    BTC SPX 21 JUL 17 2340 Put
    STC SPX 21 JUL 17 2330 Put
    Total Debit: $0.50

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