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Monday, October 11, 2010

Iron Condor open on SPX

I just love the Iron Condor.
This time I will be playing another one but using the SPX index. Indexes are better for Iron Condors than stocks because they are averages of groups of stocks, which means they move slower than a particular stock. You can trade an Iron Condor on Google or Apple, but the problem is that stocks are influenced by rumors, news, earnings etc which makes them move sharply and that's what we don't want when trading neutral positions.

The position open is:

BUY 10 NOV SPX 1100 PUT @10.50 (-10.50)
SELL 10 NOV SPX 1105 PUT @11.30 (+11.30)
SELL 10 NOV SPX 1210 CALL @9.00 (+9.00)
BUY 10 NOV SPX 1215 CALL @7.60 (-7.60)

CREDIT RECEIVED 2.20 ($2200 FOR 10 CONTRACTS)
MAXIMUM RISK 2.80 ($2800 FOR 10 CONTRACTS)



Profit range if SPX stays between 1102.86 and 1212.28 in the next 38 days.
If we hold the position until expiration, and achieve our maximum profit ($2200) our return on investment would be 78%, but we wont hold it until there, I will probably like to close it once I achieve the 1000 dollar profit plateau, that is around 35% return on investment.

Check how this trade played out 8 days later


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