Trade 25- Iron Condor -Based on Premiums

What’s That Trade Again?

Iron condor- a 4 legged beast with a short call spread and a short put spread. Here’s the thing- you can place these based on any metrics you like. There is,however, always an issue of ‘analysis paralysis’ when you get overly technical. I’ll give the details in a moment, but we have 4 lots of Greeks. We have 4 lots of complicated interdependent variables. We are trading in a market that respects nobody and no thing. The market can make your 20 delta a 60 delta in a heart beat. Your vega can be 6 or 20 in a day. I say this to stress the importance of placing the trade,when it suits your style.

Here’s The Trade

May expiry- 40 days to go. We are short one 7150 put, long one 7100 put( 65.5-45.5)=11. We are short one 7550 call and long one 7600 call (19-11.5)=7.5 So total premium=18.5. I always reckon anything over 17 is acceptable, so long as the strikes make sense. We are thus vulnerable at 7131.5 and 7568.5. Do we like them apples?

What Does The Chart Tell Us?

Friday’s close was about 7350. The recent (and all time) high was around 7450 and the last significant low was around 7100, plus change. You can have some fun with^FTSE/7275.88  I really do not use this but it is interesting and seems to think the market is going nowhere. Prediction is a fun sport in my book, not a science.

IS This a Good Trade?

It’s only good if it suits you, and you know what to do when it goes against you. Your max loss = 50-18.5= 31.5 but what is the plan IF it goes against you? No good wishing and hoping we need to have all the tools. It’s a solid type of trade with limited risk, but dull as ditch water. That suits many of us.


Filed Under: InformativeStrategiesWeekly Trade Idea

About the Author: First found out about options in 1995.From the arcane magazine Exchange and Mart! First trade- a covered call on VOD in 1999. Made 10%,VOD almost doubled. That's when I realised I was not a good trader,and I was forgiven thanks to the amazing world of exchange traded options

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  1. Terrapin Trader says:

    it’s been a while since we did this but the variation is that we are ignoring the Greeks and using premium as our guide, resulting in the strikes that select themselves- assuming that makes sense to anyone!
    After a while you get used to the way options are priced and while you may briefly see mis-priced options which you miss becasue the algo’s have seen them too, you will get a ‘feel’ for price and no trader should ever underestimate ‘gut feel’. We all want to sell options that expire worthless but that game has only one outcome-nobody wants to buy eventually.

  2. Terrapin Trader says:

    thecall spread is now about 8, puts still about 11

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