October 21, 2016
S elling an iron condor: In this video update, we’re going to go through all of the trades that we made on Thursday, June 30th. Before I do that, I want to encourage everyone again if you have not been active in the new pro and elite forum which we’ve only had around now for I think about a month. But it’s just excellent, and there’s a lot of awesome people in there.
Scott recently just shared some success stories in there of what he was doing with some iron condors. And these were trades that he did outside of Option Alpha, but just applying the same things that he learned and using them to trade by himself. And look, to me, that’s the holy grail of what you guys are doing, is being able to take this stuff and apply it yourself and use it someplace else.
But then, all the support he’s getting here from other people that are chiming in has just been excellent. And the active community here is just insane. I appreciate it. So many people are active in here. There are 166 additional threads here below. If you’re not taking advantage of this, you’re just really losing out and missing out on a great opportunity here.
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I would encourage you again if you haven’t, be active in there. If you’re active in there, get even more active, help somebody out. Add a comment, offer your suggestion, your help. Do a little bit of research for someone else. This is what it’s all about. That’s my plug to get active in the forums.
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As far as today goes, we had two trades that we got into today. The first one that we got into was an adjustment trade to TBT. Now, as bond prices – And this happened early in the day as bond prices were heading higher or heading entirely reversed all the way over. TBT was moving lower. And what we started to see as volatility is drying up in TBT. Now, that’s a good thing for our position.
And we’ve got a combination of an August position, plus a July position. And what we decided to do though is we decided to roll down the calls from the 34 strike which is all the way above where the stock is trading right now to the 32 strike. And the reason that we did that is that we want to take in a little bit of credit. It helps re-center the trade.
Plus with these inverse ETFs like this, they’re just naturally drawing lower. Even if we have a massive selloff in bond prices which would be good for TBT because it’s an inverse, a huge selloff in bond prices, that would be good for TBT and maybe make this thing rally. It might not rally as much as we assume it will in the next 18 days or so until expiration, so what we decided to do is we decided to go in here for our TBT position.
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Let me just go to the actual trade tab instead. That might help out a little bit better. Well, first, I just want to go over here. And somebody commented on the video. If you guys know how to get that setup on the trade tab. But it looks like the trade tab doesn’t show those little position arrows anymore and I don’t know why. But this is what the positions are that we have. We’ve got that iron condor for August, and then we’ve got now the custom position because we have the three original contracts that were here.
This was the original iron butterfly, and now we have this additional 32 call that was short. We rolled down from 34 to 32. That’s the exact trade that we ended up making. It doesn’t show in the position tab. I don’t know why those position markers aren’t showing it. Maybe it’s just the setting now with this new update or whatever the case is.
But all we’re trying to do here is just roll down the position. Oh, I’m looking at TLT. That’s the reason why it’s not showing. There we go. Never mind. Ha-ha-ha! A little bit late night on Thursday, gives me an excuse. Alright, we closed out of the 34s, we rolled down to something a little bit closer here at the 32s for TBT, not TLT because we don’t have a position in TLT right now, and what that ended up doing is just giving ourselves a little bit more of a balanced position overall.
We’re a little bit more balanced now in this position for the July expiration. This is what our position looks like for July expiration only. It’s a little bit more skewed, so we rolled our position down from 34, down to the 32 strikes, and instead of having this type of position where it’s an iron butterfly, now we’ve reduced risk on this side by the amount of the credit, and we’ve increased a little bit of risk on the other side by the amount of the credit.
The reason that we did that is that we know that the market has to travel through our profit zone. If it goes up towards the side that we have a little bit more risk on, it’s got to travel through this profit zone up here. Now, in this case, I know a lot of people might have questions. We had a lot of new people signing up this week.
This doesn’t show our total potential money that we can make because we can make money on this trade if TBT heads up above 32 and stays below 34. This is the resulting position. Thinkorswim and most broker platforms don’t account for the fact that we closed out of the short 34 calls at a profit. It doesn’t roll that in, but we total everything up at the end, so you guys know exactly how much money we make or lose on the position or whatever the case is. That’s why we did it.
We made that adjustment to give ourselves a little bit more balance. If TBT continues to head lower, we’ll just keep rolling down that called strike closer and closer to where the stock is. But right now, I think we’re pretty good. We’re about 15 days out till expiration, so we’ve got a little bit of time. We can let this thing work just a little bit longer.
Alright, the new position that we got into today I think is a pretty cool position, and it’s in MON, one trade that we wanted to make an earnings trade on. I’m glad that we didn’t get filled on the earnings trade because volatility didn’t drop at all. In fact, it went up a little bit higher post-earnings. And now, MON is sitting with pretty much the highest implied volatility of the stocks on our watch list around the 94th rank.
In this case, we’re going to get aggressive here and sell a very tight, very narrow strike iron condor. Now, you’ll notice that we went ahead and sold the strikes at 105 on the call side and 100 on the put side. It almost is acting as an iron butterfly. It is an iron condor because it doesn’t have those same short strikes. If it were an iron butterfly, we’d have the 105 or the 100.
But we’re very, very tight. And the reason that we did that is that at, the time that we entered this trade, the stock was trading around 103 today. And you can see it closed around 103.41. What we ended up doing is we just ended up making these strikes tight on either side. We sold the 100 puts, sold the 105 calls, and then that gives us a middle point or a breakeven right around the 103 that the stock was trading at.
It’s not exact, but we don’t have 103 strikes that we could trade. And then all we did is we went out $20 on either end. We went down to the 80 strikes, and we went up to the 125 strikes. An even distance out on either end of $20, and that gives us a very balanced and neutral looking iron butterfly for MON.
When we look at the pricing chart here, you can see it’s got pretty wide wings. And we took in a huge credit. I mentioned this on a trade alert, but it’s worth saying again. This is not for everybody. The margin required on this trade is almost 2 grand for just this one contract. It’s not for everybody. If you can’t do it, there're other alternatives you could do. You could go a little bit wider out on your strikes.
I know some people emailed in and they said that they went out and they sold the 85 puts and bought the 80 puts, and then they went out and sold the 120 puts and bought the 125 puts. You can make it a wider iron condor and make the spread strike a little bit more narrow. We went $20 wide. You could go $5 wide on each side.
You’re obviously going to take in a little bit less premium than our $910 that we took in on this one, but you could make the case that you could do that trade if you wanted to. Just wanted to offer that up as a suggestion on how you could do it. The way that we want to do it is a little bit more aggressive because implied volatility is high, so we went ahead and did the 94th rank type strategy which is being a little bit more aggressive doing that iron condor/iron butterfly alternative.
With $910 of potential premium, that pretty much moves our breakeven points out on this thing, out to around 91 or so on the bottom side and then about 114 on the top side. If we look at where MON is trading right now, about 91 is down here and about 114 is all the way up here, so quite a big profit potential range for this trade.
It has about a 60% chance of success, but a wide range because of that high implied volatility. I assume that if implied volatility drops, even if it drops from 93 down to 60, it’s still high. But even if it drops from 93 down to 60, we’re going to see a very, very quick profit materialize here with this position. I hope we don’t have to keep it too long.
But we’ll obviously try to manage this position a little bit early, maybe take $200 or $300 out of this position and make a quick trade in it over the next week or so. Those were the two trades that we got into today. As always, if you guys have any comments or questions, please ask them in the comment section right below. Get active in the forums. And until next time, happy trading!