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December 26, 2012

SPX Dec'4 Bull Put spread

  • Sell Dec'4 1390 Put
  • Buy Dec'4 1385 Put
  • Credit: .30¢
  • Margin: $4.70
  • ROR: 6.38%
  • Fills: .30¢ credit
Risk Profile:

12/28/12 Update:
This credit spread expired worthless, we kept full credit or 6.38% Return on margin.

December 19, 2012

Know when to roll

When trading Iron Condors, you are selling 2 spreads for a total net credit. Ultimately, you're betting that the underlying stock or Index (or whatever you're trading) will not breach a certain level on the upside, and a certain level on the downside.
But what if it starts to move against you?
  • Do you just close and take a loss?
  • Do you adjust?
  • How do you adjust?
There is no one specific answer. That's what makes every trader unique. Every trader has their own trading style, risk profile, among other factors. One trader might prefer rolling out, while others might like to buy Out of The Money (OTM) options to relieve pressure. It all depends on individual view on the market structure.
I believe rolling out is best when markets are trending and buying (OTM) options when markets are chopping. You might disagree, and that's OK too. 
Let's take a look at a simple example: 
You sold a 10 delta spreads 40 days away. If the underlying is moving lower and your put spread goes from 10 delta to 25. What do you do? Look at your call side. Let's say you sold a call spread for .90¢, and it's now worth .14¢. That's not giving you much of a hedge against your put spread because it can only go down to 0. The best thing to do, if you don’t want to roll your put side, is to buy back your call spread for .14¢, taking in .76¢ profit on the call side and opening another spread for a higher credit. Worst case, if you're forced to roll your put side, you have some of the profit you took on your call side to work with.
The most important factor in this equation is the timing of these adjustments. The closer you are to expiration, the more it will cost. However, if you make the adjustment on time, you can turn a losing Iron Condor into a money maker.

SPX Dec'12 Iron Condor

Sell: Dec Monthly 1415 Put 
Buy: Dec Monthly 1410 Put
Sell: Dec Monthly 1470 Call
Buy: Dec Monthly 1475 Call
Credit: .45¢
Margin: $4.55
Return: 9.89%
  • 1420/1415 Put spread @.40¢

Risk Profile:


12/19/12 Update:
We're moving our short strike on the put side to 1420 and will look for a .40¢ credit.
12/21/12 Update:
This credit spread expired worthless, we kept full credit or 8.69% Return on margin.

December 18, 2012

Position Sizing

One of the key elements when it comes to investing is risk management. Investors that can successfully manage risk will make money in the long run. But many investors focus on how much money they want to make instead of properly managing their risk. I'd like to share one way to figure out how to manage risk and determine how much risk should an investor take.

Portfolio size: $50,000 
Risk per trade: 2% of overall portfolio: 50,000/.02 ($1,000)

That said, if your position is down $1000, you need to exit the trade and review your decision entering the trade, timing of entry, etc.

So, if you're putting on an Iron Condor trade, and if your stop out point is -$1000 and that's 20% of your risk, your risk total shouldn’t be more than $5,000

That means if the distance between your sold option and bought option is 10, ex: 450/460 calls or 320/310 puts you shouldn’t do more than 5 contracts. That's how you determine how many contract to trade.
The number of contacts will control your risk. Of course there are ways to manage losing positions to minimize loses but more importantly make adjustments on time. We provide live trade alerts and live adjustments to our premium Weeklys4Income members.

Iron Condors 101

There are a few things that anyone looking to trade Iron Condors need to know first:
  1. Iron Condor is a Volatility bearish trade
  2. Limited Risk/Limited Reward
  3. Low reward/high probability
  4. Goal is to let sold options expire worthless as you are selling time premium
What makes an Iron Condor is a combinations of a Bear Call Spread and a Bull Put Spread. Let's say XYZ is trading at 50 in May. To put on a Bear Call spread you would sell June 55 call and buy June 60 call. To put on a Bull Put spread you would sell a June 45 put and buy June 40 put. The reason for buying the wings (60 call and 40 put) is to limit downside. Speaking of downside, what is your total risk on this trade?
  • Max Loss = Strike Price of Long Option - Strike Price of Short Option - Net Premium Received
So, if you sold a Bear Call Spread for .40¢ your max loss is : 60-55-.40=4.60
Remember, each contract represents 100 shares of XYZ. Therefore your max loss on this trade would be $460. Same goes for the Bull Put Spread. 

Your breakeven points are:
  • Upside Breakeven Point = Strike Price of Short Call + Net Premium Received
  • Downside Breakeven Point = Strike Price of Short Put - Net Premium Received
One question people ask, why would anyone risk $460 to make $40?
And the answer is simple 40/460=8.69% return on risk. If you're collecting .40¢ for selling a Bear Call Spread and say you sell a Bull Put Spread for .60¢ (remember, Iron Condor is a cominations of bear calls and bull puts) now you have a total credit of $1. Now your looking to make $1 risking $4. That's 25% reward on risk. Since options expire every 3rd friday of each month, most would considered 25% return pretty good. 

AAPL Dec'12 Risk Reversal

Sell 510/505 Dec'12 Put Spread
Buy 535/540 Dec'12 Call Spread


Risk Profile:

Margin: 500 per contract
Max Gain: 500 per contract

12/18/12 Update:
Closing out this trade for +.70¢ per contract or 14% return on margin.

December 13, 2012

SPX Dec'12 Bull Put spread

Sell: Dec2 1400 Put 
Buy: Dec2 1395Put
Credit: .30¢
Margin: $4.70
Return: 6.38%
Fills: .30¢ credit.

Risk Profile:


12/14/12 Update:
This trade expired, we kept full credit.

December 12, 2012

SPX Dec'2 Iron Condor

Sell: Dec2 1410 Put 
Buy: Dec2 1405 Put
Sell: Dec2 1460 Call
Buy: Dec2 1465 Call
Credit: .50¢
Margin: $4.50
Return: 11.11%
Fills: Will be posted when/if order filled.

Risk Profile:


Update 12/13/12:
No fill for this trade, will look to enter new position.

December 6, 2012

SPX Dec'1 Iron Condor

Sell: Dec1 1390 Put 
Buy: Dec1 1385 Put
Sell: Dec1 1430 Call
Buy: Dec1 1435 Call
Credit: .45¢
Margin: $4.55
Return: 9.89%
  • 1430/1435 Bear Call spread sold for .20¢
  • 1390/1385 Bull Put spread sold for .25¢
Risk Profile:


Update 12/6/12:
I am also offering 1430/1435 Bear Call spread for current mid price of .20¢
Will post fills if/when orders go through.

Update 12/7/12:
This position is working well, we're going to leave it to expire between short strikes:

Update 12/9/12:
This position expired worthless for 9.89% Return.

December 3, 2012

Chart of two dying stars

Dell Inc was upgraded by Goldman Sachs and this stock is up almost 5% today. Let's see the daily chart on this puppy:

This stock has been in a solid downtrend since April of this year and there are a few clear levels that were support and now should act as resistance. Looking at this chart, it reminded me of a chart I saw earlier today. This chart happens to remind of a company that's in a similar position, except with smart phones and not PCs. And the winner is.... RIMM:

RIMM has been in a downtrend since early 2011 (actually since Apple released iPhone 1), and now it's at a critical level of resistance which was support before breaking underneath. It should be fun to see who wins, buyers or sellers and if we're going to see RIMM back in single digits again. Dell and RIMM charts are similar as they both have clear levels of support/resistance that these stocks can be traded against. Make sure you understand risks involved buying or selling any security and speak to a professional before taking this risk.

November 28, 2012

SPX Nov5'12 Bear Call spread

Sell Nov5 1420 call
Buy Nov5 1425 call
Credit: .40¢
Margin: $4.60
Return: 8.69%
Filled: .40¢ and .65¢ Cost: .525¢

Risk Profile:


Update: 11/29/12

S&P continues to attempt to rally and any bit of news from Washington can send SPX one way or the other. We still holding our 1420/1425 Bear Call spread, using S&P E-mini futures can help hedge overnight risk (GAP UP).

Update: 11/30/12

Closed 1/2 position for .30¢ debit or 5.02% Return
Closed the rest for .25¢ debit. Total .25¢ gain or 5.58% Return

November 15, 2012

SPXPM Nov'12 Bull Put spread

Sell Nov'12 1330 put
Buy Nov'12 1325 put
Credit: .25-.30
Margin: 4.75-4.70
Return: 5.25-6.38%

Risk Profile:


Note: This is monthly SPXPM - PM settled index option. This option expires on Friday 4:00PM EST  NOT on Thursday. For more info on SPXPM click here. 

11/15/12 Update:
We got filled at .25 and .35 so cost is .30¢

November 14, 2012

SPX Nov'12 Bull Put Spread

Sell Nov'12 1340 Put
Buy Nov'12 1335 Put

Credit: .30¢
Margin: $4.70
ROR: 6.38%

Risk Profile:


Note: These are MONTHLY options that expire on Thursday 4:15EST and settled on Friday on the open.

11/15/12 Update:

We filled this order for a credit of .40¢ to open and a debit of .10¢ to close or 6.52% Return on margin.

November 7, 2012

SPX Nov2 Bull Put Spread

Sell Nov2 1355 Put
Buy Nov2 1350 Put

Credit: .30¢
Margin: 4.70 per contract
ROR: 6.38%

Risk Profile:


October 24, 2012

SPX Oct4 Bull Put spread

Sell Oct4 W 1385 Put
Buy Oct4 W 1380 Put

Credit: .30¢
Margin: $4.70


Risk Profile:

Update 10/26/12:

This credit spread expired worthless or 7.52% return on risk.

October 23, 2012

NFLX Oct4 Iron Condor


Sell Oct4 W 80 call
Buy Oct4 W 85 call
Sell Oct4 W 55 put
Buy Oct4 W 50 put

Credit: 1.10
Margin: 3.90

Risk Profile:


Update 10/24/12:

This position was closed for .80¢ profit or 20.51% ROR

October 18, 2012

RUT Oct4/Nov Calendar

Sell RUT Oct4 840 Call
Buy RUT Nov 840 Call

Margin: 7.80 per contract

Risk Profile:


Game Plan:
  • Profit target: 1.15 per contract 
  • Max loss: 1.20 per contract
Update 10/19/12:

Buying Oct4/Nov 825 call calendar to turn this position into a double calendar:

  • Margin: 15.80 per contract 
  • Profit target: 2.35 per contract
  • Max loss: 2.50 per contract

Update 10/23/12:

This trade was stopped out for -2.50 or -15.82% ROR

October 11, 2012

RUT Oct/Nov Calendar

Sell RUT Oct'12 830 call
Buy RUT Nov'12 830 call

Margin: 10.05 per contract

Risk Profile:


Game Plan:
  • Profit target: 15% of margin (150)
  • Max loss: 15-20% of margin (150-200)
Update: 10/16/2012

Exited for +1.15 gain or 11.44% profit

October 10, 2012

SPX Oct'2 Bull Put Spread

Sell Oct'2 SPX 1420 put
Buy Oct'2 SPX 1415 put

Credit: .60¢ per contract
Margin: $4.40 per contract

Risk Profile:


Game Plan:
  • Profit Target: .50¢
  • Max Risk: .50¢
Update 10/11/2012:

Exited out for .20¢ debit or .40¢ profit (9.09%)

October 8, 2012

RUT Oct'2 ButterFly

Sell RUT Oct'2 840 Call
Buy RUT Oct'2 845 Call
Sell RUT Oct'2 840 Put
Buy RUT Oct'2 830 Call

Margin: 4.10 per contract

Risk Profile:

Game Plan:

  • Portfolio: 50,000
  • Max Risk: 2% per trade (1,000)
  • Profit Target: 15% of margin (.60¢)
  • Max Loss: 15-20% of margin (.60-.80¢)

Update 10/9/2012:

Got stopped out -.70¢ or -17.07% return

October 4, 2012

RUT Oct'2/Oct Calendar

Sell RUT Oct'2 840 call
Buy RUT Oct 840 call

Margin: 3.20 per contract

Risk Profile:

Game Plan:

  • Portfolio: 50,000
  • Max Risk: 2% per trade (1,000)
  • Profit Target: 10-15% or margin (.45¢)
  • Max Loss: 15% of margin (.50¢)

Update: 10/5/2012

P/L shows .25¢ gain so far per contract. Will look to exit early next week.

Update: 10/8/2012

This trade closed for .50¢ gain or 15.62% return.

October 1, 2012

AAPL Oct1/Oct Call Calendar

Sell AAPL Oct'1 665 Call
Buy AAPL Oct 665 Call

Margin: 9.05 per contract

Risk Profile:

Game Plan:

  • Portfolio: 50,000
  • Max Risk: 2% per trade or 1,000
  • Target Profit: 15% of margin or 1.35
  • Max Loss: 15-18% of margin or 1.40-1.60

Note: This trade was entered with AAPL trading around 665.

Update: 10/2/2012

This trade was closed for 9.71 credit (+.66¢) or +7.29% return

September 28, 2012

RUT Oct1/Oct Calendar

Sell RUT Oct'1845 call
Buy Rut Oct'1 845 call

Margin: 5.50 per contract

Risk Profile:

Game Plan:
  • Portfolio: 50,000
  • Max Risk: 2% per trade (1,000)
  • Profit Target: 15% of margin (.825)
  • Max Loss: 20% of margin (1.10)

Update: 10/1/12

Trade was closed out for credit of 6.40 (+.90¢) or 16.36% gain.

September 20, 2012

RUT Sep4/Oct 850 Put Calendar

Sell  RUT Sep4 850 put
Buy  RUT Oct 850 put

Margin: 8.30 per contract

Risk Profile:

Game Plan:
  1. Portfolio Size: $50,000
  2. Max Risk: 2% per trade ($1,000)
  3. Profit Target: 20% of margin ($165)
  4. Max Loss: 20% of margin ($165)
Max loss per contract is $165 and Max risk per trade is $1,000 this trade can be up to 6 contracts (6 X 165 = 990).

*Note: All prices are shown as of 9/20/12

Update: 9/21/12

Adding Sep4/Oct 860 Call calendar for debit of 7.40 per contract:

New Risk Profile:

  • Margin: 15.70
  • Profit Target: 3.00
  • Max Loss: 3.00
Update: 9/26/12

Stopped out at 12.65 for -19.43%

September 16, 2012

RUT Sep/Oct Calendar

Sell  RUT Sep 865 call
Buy  RUT Oct 865 call

Margin: 10.05 per contract

Risk Profile:
Images by Thinkorswim © 
Game Plan:
  1. Portfolio Size: $50,000
  2. Max Risk: 2% per trade ($1,000)
  3. Profit Target: 15% of margin ($150)
  4. Max Loss: 20% of margin ($200)
Max loss per contract is $200 and Max risk per trade is $1,000 this trade can be up to 5 contracts (5 X 200 = 1000).

*Note: All prices are shown as of 9/14/12 close

Update: 9/17/12

No trade today. Will have to wait for the next set up.