Live Double Calendar in SPX

Double Calendar  B 1  Jun 8  2750 C,  B 1  Jun 8  2690 P, S 1  May 25  2750 C, S 1  May 25  2690 P  16.30 Debit

Profit target: Sell Spread at 17.45 credit for about 7% profit. Max Loss when Spread decreases under 14.80, loss of around 10%

Dan, covered the trade in more detail in the video below.

Iron Condor or Iron Butterfly, Which is better?

I am often asked as an option trading mentor, which is better, the iron condor or the iron butterfly. Both are short Vega trades meaning that they benefit from volatility lowering. However the structure is different and the pros and cons of each are different.

 

The iron condor, is perhaps the most popular option spread trade. The structure is selling a call vertical and a put vertical, out of the money, usually by several strikes. The benefit to the strategy is that it is short one volatility and also it has a wider range for the price to move around,  up or down, before you get into any trouble with the trade. It is a good trade in higher volatility markets because you paid more premium for what you are selling. However, there is no “free lunch” ,and the increased premium comes with the increased risk of large price movements in a volatile market. Think of it as selling car insurance to a 16 year old.The downside of using an iron condor is that when it goes  against you, it is more difficult to repair, and you can lose more money because you took in less premium by selling options that were further from the money.

 

The iron butterfly is also a trade that benefits from lowering volatility. It is structured by selling an at the money call vertical and an at the money put vertical with varying long wing widths. The iron butterfly has more narrow structures than the iron condor however it has a better risk to reward because your return can be so much higher on the money at risk than with the iron condor. This is because you received more premium selling the at the money options. Because it has this greater risk/reward the iron butterfly can be put on in a wider range of markets both lower volatility and higher volatility. Even though it is short volatility it still performs well even in lower volatility markets because of the risk reward. Both of these trades require that the price stay inside of a range for the trade to be profitable.The iron condor gives you more room, and the iron butterfly gives you less room for the price to move.  Overall in most markets I preferred the iron butterfly because of the increase risk reward.

Mark Fenton

mark@sheridanmentoring.com

How to Cheaply Trade Cash Secured Puts in a Retirement Account?

Trading Cash Secured Puts or Covered Writes, basically the same trade, is outrageously expensive in a retirement account. With FB at 165 today, Buying 100 shares at 165 and selling one 170 call at $4.50, expiring in 32 days, cost’s about $16,000 to trade!!! If doing an almost identical strategy called a cash secured Put, selling one 160 P at $4.50, the capital requirement is still going to be near $16,000. How do I do this type of a strategy in a very cost efficient way? Sell a wide put Credit Spread. Using FB as an example today. With FB at $165, I can sell the 160 Put at $4.50. Because the capital requirement is very high to sell the put naked, even if I have the capital too do it, I will look to buy a put against it at 15% the cost of my short put. My short put is going for 4.50, 15% of 4.50 is about $65, so look to hedge the short 160 put with the 140 Put . The May 18 expiration 140 Put is currently trading for .65. Now I have a 20 wide put credit spread, short the 160 Put and long the 140 put for roughly a $3.80 credit. My risk or margin is now $1620 for every 1 contract versus $14,000-$16,000 for every 1 contract doing a Covered write or cash secured put!! My profit target might be to make 8% for the month on my capital for 1 contract of $1620. That would be $130 for a profit target on every 1 contract. If I sold the credit spread for $3.80 Credit, I would look to buy it back for $2.50 debit. As far as a Maximum Loss, if I lost 10% would get out. Using this trade as an illustration, if the credit spread exceeded $5.40, would get out for a loss.

 

Dan Sheridan   dan@sheridanmentoring.com

Live FB Pre-Earnings Calendar Trade

With FB at 159.83 at 11:34 central time today April 9, I did a Live Pre- Earnings  Calendar

Step 1: Set up:  Buy 1  Apr 27  160 Call,  Sell 1  Apr 20  160 Call,  2.82 Debit.  Implied Volatility of long call is 47.71 and  Implied Volatility of short call is  35.98.

Step 2:  Profit Target and Max Loss:  Looking to make $30-$40 for every 1 contract, which would be 10-15% on Capital of $282. Max Loss would be around $50 or about an 18% loss on $282. So for a profit, when the Calendar price goes to the 3.15-3.25 area,  would  take off . When the price of the Calendar goes to around 2.30 from the initial debit of 2.82, I would get out for a loss.

Step 3 is When to Adjust and Step 4 is how to adjust. For today’s trade, I will stick with just step 1 and Step 2 and not get into Adjustments.  For people new to this type of a Calendar, let’s learn to walk before we learn to run.

Live Iron Condor in BABA

Currently trading at $187, the stock has been in a range between roughly 170 and 200 since Mid August, about 6 months. I put on an Iron Condor today. Sell 1  Apr 6  207.5 Call,  Buy 1  Apr 6  212.5 Call, Sell 1  Apr 6  167.5 Put, Buy 1  Apr 6  162.5 Put,  Total Credit  $85. Margin or risk for 1 contract is $415. The expiration of April 6 is 31 days from today. Looking to buy in the spread around .30  Debit.  The profit target would be $55 on capital of $415 for 1 contract, or a yield of 13%. If Baba goes against me price wise, I will close out the Iron Condor if the spread price that I sold for .85 credit, trades over $2.

Dan Sheridan

dan@sheridanmentoring.com

Live Iron Condor Trade

18 Day SPX Iron Condor Live Trade put on around 11:30 am central today when SPX was about 2715.  S 1  Mar 23  2805 C,  B 1  Mar 23  2815 C, S 1  Mar 23  2575 P,  B 1  Mar 23  2565 P, $1.70 Credit, Margin $830. Delta of short put and call at trade entry was  12 and 13. Plan is to make 7-8% of $830 and not to lose more than 10% of $830. As of 2:43 central today, SPX has run up to 2727, up 36 for the day. The spread is trading at around $2 right now, we are down 30 divided by 830 or 3.6% now. Would look for possible adjustment when short call delta hits around 19, right now it’s at 16, with SPX at 2726. I might roll up my short calls 5 points  at an adjustment point as a possible adjustment.

Dan Sheridan

dan@sheridanmentoring.com

Update to Monday Blog on High Octane Butterfly

Closed High Octane Butterfly from Monday near the close yesterday for a credit of 1.50 Credit. The loss was very small, $5. I originally bought the Butterfly Monday for 1.55 debit. The original Butterfly was B 1 Feb 28 2755 C, S 2 Feb 28 2765 C, B 1 Feb 28 2775 C, $1.55 Debit. Why did I take it off yesterday? Yesterday, SPX traded up to 2789, over 20 points away from our short strike of 2765, not good with a 2 Day Butterfly! When the market backed off strong yesterday towards the close, I had the opportunity to take it for almost Breakeven and did so. Why did I wait till yesterday to get out when my plan on the Blog Monday was not to stay in the trade Monday for over 2 hours? Because I only put 1 contract on, $155, I got sloppy and didn’t follow my strict risk management and stayed in longer than I wanted to , looking for a profit. I got lucky yesterday when SPX backed off but always want to follow my plan!

Dan Sheridan dan@sheridanmentoring.com

High Octane Live Butterfly

At 11 am central today with SPX at 2765, I bought 1  Feb 28  2755 C, S 2  Feb 28  2765 C,  B 1  Feb 28  2775 C, for $1.55 Debit ( Margin/Risk  =  $155 for every 1 contract). Game Plan is to sell it for $1.85 Debit or 20% profit. I will only stay in this trade till 1 central time today or if SPX hits 2755 or 2775, whichever comes first, at that point , will exit trade.

 

Dan Sheridan

dan@sheridanmentoring.com

Blog Update from Monday’s Live SPX Iron Condor

During a Webinar for Ally Invest Monday, I did an SPX Iron Condor for $1.70 Credit. Details on the trade are in Monday’s Blog titled “Live Iron Condor Trade”. Today I took the trade off for a debit of $1.25. The net profit was $45 for every 1 Iron Condor or a yield of 5.4% in 2 days. With the market relatively stable in the morning today and the VIX dropping almost 4 ½  points  , I got the opportunity to take it off for good profit today.

Dan Sheridan

dan@sheridanmentoring.com

Live Iron Condor Trade

With SPX at $2659  +40 Points, I did an Iron Condor in the Mar 29 Expiration, 45 Days out. Sell 1  2830 Call,  Buy 1  2840 Call,  Sell 1  2370 Put,  Buy  1 2360 Put. Total Credit $1.70, Maximum Risk and Capital allocated is $830. (Trade was discussed earlier today in a webinar with Ally Invest)

4 Step Risk Management Plan

#1  Set Up:  Picked Short Strikes by Selling a 12 Delta in the Calls and Puts. Expiration is 45 Days out from Today.

#2  Profit Target and Max Loss. Looking to make 8% on Capital or risk of $830,  that would be about $65 per every 1 Iron Condor. I would have an order in to buy back the spread at  $1.05 Debit.

If the market goes against me, don’t want to lose more than 15% of the $830 Capital or about $125. So if the spread expanded to $2.95 from the initial $1.70 credit, would get out.

options trading courses

Why am I willing to lose 2X what I am hoping to make? I don’t want to lose more than I make, but to give the probabilities time to work, I have to give myself more room before I adjust.

Steps 3 and 4 talk about When to Adjust and How to Adjust, a little more advanced topic, so for this  Iron Condor , I will keep this simple and just give a plan of where I would take a profit and where I would get out for a loss.

Dan Sheridan

Dan@sheridanmentoring.com

Note: Tomorrow at 11 am central starts a new 3 week class at Sheridan Mentoring:  Trading Double Calendars in an Volatile Environment. This has been one of the most successful strategies in Sheridan Mentoring over the last 5 months, and we will spend the next 3 weeks discussing how to manage and trade this strategy in a more volatile environment. Go to Sheridanmentoring.com for more information. All classes are recorded and archived.