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BookingAlpha Option Trading Advisory

Monday, February 24, 2014

April 2014 RUT Iron Condor plus a March SPY Credit Call Spread

Today I entered the first trade of the April options expiration cycle using RUT as my vehicle of choice:

Buy 2 RUT April 1020 Put @4.20
Sell 2 RUT April 1030 Put @4.60
Sell 2 RUT April 1245 Call @3.20
Buy 2 RUT April 1255 Call @2.20

Credit: 1.40 ($280 for 2 contracts per leg)
Max Risk: 8.60 ($1720 for 2 contracts per leg)
Break even points: 1028.60 and 1246.40
Days to expiration: 52

I used the 10 point wide Iron Condor, as the 5 point wide strikes were not available for the Put side area.

A chart of RUT after market close for my own future reference
(Click on image to enlarge)

Then the market kept going up during the day. At one point the percentage of stocks above the 20 DMA was 80 and the McClellan Oscillator went above +170. I decided to sell Calls with March expiration as outlined in the Action plan for this week:

Sell 11 SPY March 191 Call @0.30
Buy 11 SPY March 193 Call @0.14
Credit: 0.16 ($176 for 11 contracts per leg)
Max Risk: 1.84 ($2024 for 11 contracts per leg)
Break even point: 191.16
Days to expiration: 25

This Call spread makes up an Iron Condor with the existing 159/161 Credit Put spread (159/161/191/193 for 0.29 credit, $319 in 11 contracts per leg, and 1.71 max risk. $1881)

The market started to reverse after 3PM to close far from the day highs, making me almost look like a genius. If it keeps going down from here I will look like someone who actually knows what he's doing.

Here's SPY
(Click on image to enlarge)
I think the upside is limited at this point but will, as usual, have to look at this trade closely for possible emergencies should SPY spike up to 189 or something like that.

With these two trades, these are the current positions in the portfolio:
March positions
SPY 159/161/191/193 Iron Condor, $319 credit 
RUT 940/950 Bull Put Spread, $180 credit

April positions
RUT 1020/1030/1245/1255 Iron Condor, $280 credit

Check out 2014 Track Record

Related Articles
Weekend Portfolio Analysis (March 1, 2014)
Closed RUT 1020/1030/1245/1255 for a Loss on March 4

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  1. That 191/193 is now selling for .11 credit. So well done for sure. I personally hate a rising market since VIX is so low and you have to sell much closer to the index price to get any decent premium. I know 2014 will not be like 2013, but the action of the last 3 weeks is reminiscence of last year. Just when you think it can't possibly go any higher, it does.

    I see that you went much further on the put spread on RUT. That is a smart move since I suspect we will either have a pause to this rally or a minor sell-off. I did not sell any spreads today.

  2. Thanks for your comments pal.
    Yes, rising markets are really challenging for the reasons you mention. As you know, only selling Puts can yield very decent results come year end. Once I learned that last year, I realized that Call selling was just an extra bonus that I should only pursue when I felt the overbought conditions were really extreme. I feel pretty good about this 191/193 SPY trade. We'll see.

  3. I completely agreed with you that the bulk of our trades should be selling put spreads and use the bear call spreads as a bonus when the market is really overbought. I know some people who will do an iron condor every month regardless of market condition. Their whole premise is that they are non-directional traders so by selling puts and calls at the same time, they are hedged. But I believe selling puts will work more often than selling calls due to the way a bullish stock market works.