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BookingAlpha Option Trading Advisory

Wednesday, July 22, 2015

September 2015 RUT unbalanced Iron Condor

Today I entered the first trade of the September monthly options expiration cycle

Trade Details:
Buy 2 September RUT 1120 Put @5.30
Sell 2 September RUT 1130 Put @6.10
Sell 1 September RUT 1330 Call @2.58
Buy 1 September RUT 1340 Call @1.83

Credit: 0.80 on Put side ($160), 0.75 on Call side ($75). Total credit received $235.
Max Risk: $1765 on the downside with RUT below 1130 and $765 on the upside with RUT above 1330.
Days to expiration: 58

Here's the initial profit picture of this animal:
(Click on image to enlarge)

I played this position a little different. At the time of the trade, the Call strike that was closer to 10% probability of expiring in the money was the 1320, so I would have normally sold the 1320/1330 Credit Call spread, however I went a little further up, sacrificing some of the credit I usually like to receive on the Call side. 1320, although an all time high value was a bit aggressive for me. Remember that I will adjust my trade early, instead of waiting for the market to hit my position. So a position like this one would be adjusted if RUT hits 1290 or so, which is not only below all time highs but pretty achievable in my opinion, just barely 3% away. So I wanted to give my self a little more room on the upside. Also, we are so far from short term overbought (only 41% of stocks are above their own 20 DMA) that I wanted to have upside room. So, it's a little of a subjective call here, we'll see how it plays out. Perhaps the natural play suggested by the Lazy Trader Mantra of 1110/1120/1320/1330 in the end turns out to be better, but let's say I'm a little biased here. In any case, the variation I'm playing is not too far from what I would have typically played anyways.

On the Put side I also did things a little different. Instead of selling the strike with around 10 deltas (1120), I sold around 12 deltas, thus the higher 1130 strike price. I did this in order to obtain a little more credit and compensate for the one I sacrificed on the Call side.

Here's the chart of the RUT index after market close today, July 22, 2015 for my own future reference and self study:

(Click on image to enlarge)

Current positions in the Portfolio:

August RUT 1150/1160/1350/1360 unbalanced Iron Condor
$254 credit, 91% probability of success and 30 days to expiration. Looking very comfortable now. Will adjust if RUT reaches 1330 or falls to 1200.

August SPX 1815/1825 Credit Put spread
$120 credit, almost a sure winner unless something really bad an unexpected happens on Planet Earth. 30 days to expiration. I will start to attempt an early exit for 0.05 debit only to free up margin and have my gunpowder dry for a possible reload should the market fall.

September RUT 1120/1130/1330/1340 unbalanced Iron Condor
The trade discussed on this article.
$235 credit received, 58 days to expiration. 79% probability of success. Lots of baby-sitting ahead.

I now have three positions on, which is a lot. I don't mind having 3 positions on as long as at least one of them is expiring soon, but the closest one is in August 30 days from now. So, too much risk on, that's why it is now a good idea to close one of the positions, the SPX spread preferably, which has made most of its profit already in less than two weeks.

Check out 2015 Track record

Related Articles:
Weekend Portfolio Analysis (August 2, 2015)
Weekend Portfolio Analysis (August 9, 2015)
Weekend Portfolio Analysis (August 16, 2015) 
Adjusted RUT Iron Condor down to 1050/1060/1330/1340 on market sell-off

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