Hi all, my goal is to generate consistent income via Option Selling strategies (Credit Spreads, Iron Condors, Double Diagonals, etc). I'm relatively new to the option selling scene. I'll be posting my trades and adjustments in the hopes that through documenting and talking about them, I'll learn more than just going through it in my head. I also hope that any discussion generated will potentially help others as well. Cheers, S
I have a bunch of trades already open and will add them gradually to the thread. The first strategy that I'm focusing on right now is the Iron Condor. It looked a lot simpler when I was first starting out with them, but as I get deeper they are getting more complex. I've developed a business plan to guide my trading and I've tried to spell out my exact thinking on how I will be approaching these strategies from the original goals, to entries, to exits, and money management. The piece that I'm now diving deeper into are adjustments: when to do them, what to do, etc. I have some ideas listed in the section below but there are more that I have not yet included and still need to better understand. This by far is the most complex part for me and I suspect will take some time to become comfortable with. I've taken this piece straight on Iron Condors from my business plan: i. Iron Condors 1. Essence of the Trade: This is a market neutral income generating strategy using both call and put credit spreads on the same underlying. The idea is to target an underlying that is not strongly trending and take advantage of time decay to profit from call and put credit spreads. 2. Timeframe: This trade will be put on between 45-90 days prior to expiration. 3. Setup: I will use Bollinger Bands to identify extremes in the underlying price. The trigger to initiate the trade is when the price of the underlying is close to or touches the 2 StdDev band and is then showing signs of reversal. Analysis of option strike spreads, option price spreads, R/R ratio, open interest, etc for an appropriate opportunity will be done prior to opening a position. 4. Position Sizing: Position sizing for each spread will be based on the assumptions that: a. I'll need 20% of my total Trading Float reserved for use in adjustments to my positions along the way b. My losers will average 30% of the Margin required for each position c. My R value (Risk Amount) continues to be 1% of my Trading Float This means that on a per spread basis, the calculations for position sizing and the number of total positions I can have open at a time will be as follows: Margin Target = (TradingFloat * .01) * 3.33 Total Positions Must Be < (TradingFloat * .8) / Margin Target Example assuming a $35,000 Trading Float would be: Margin Target = $1165 Total Positions Must Be < 24 5. Entry: a. The short strike will be targeted at 25 deltas and/or 1 Standard Deviation from the current price. Considerations of support/resistance and R/R ratio will be reviewed as well to determine the appropriate strike. b. Ideally there should be significant resistance or support between the current price and the short strike. c. Look for a minimum 12% profit potential. 6. Adjustments (still work in progress): a. If the underlying price touches the short strike, roll the position out to where the short option is at 25 deltas and you are again 1 StdDev from price but using 1.4 times the original contracts. b. On a strong move, buy back only the short strike and leave the long intact for the duration of the move (Discretionary) c. To be Tested i. Open a Calendar Spread 2 StdDev from current price in direction of the problem ii. 7. Profit Target: Exit the spread when it can be bought back at 10% of what you originally received. 8. Stop Loss: Exit the spread when the loss is at 1 times the original credit. 9. Time Exit: Exit the spread with 1 week left until expiration (on a discretionary basis). For the underlyings, I will focus on ETFs almost exclusively. The focus for my non-directional trading will be on ETFs that are highly liquid and have that $1 Strike spread. The following is the first trade that I'll enter here. There are more that I'll add over time: Iron Condor Underlying: EEM Opened: 12/4/09 Open 11 January 51/53 Call Credit Spreads for a $.35 Credit Open 11 January 36/38 Put Credit Spreads for a $.26 Credit Total Credit: $.61 Max Profit Potential: $575 (36.46%) Max Risk: $1625
I opened a new trade today. It is only one leg of the condor though based on its price action being close to the lower Bollinger Band and starting to move higher. I'll look to open the other if the opportunity avails itself but I've found that when I leg into a condor I sometimes am not able to complete it. I think this is OK but it does alter the nature of the trade from non-directional to directional. Is this a big deal? So far, I don't think so. One disadvantage of opening the condors in this manner is that if the price action moves toward my short option, I don't have the opposite wing to offset the losses. Anyway, here is the summary of my current trades including the new one (listed in chronological order from newest to oldest): ======================================== Iron Condor (NEW) Underlying: EWZ Opened: 12/10/09 Open 5 January 64/68 Put Credit Spreads for a $.51 Credit Total Credit: $.51 Max Profit Potential: $231 (13.5%) Max Risk: $1769 ----------------------------------------------------------- Iron Condor (Updated) Underlying: EEM Opened: 12/4/09 Open 11 January 51/53 Call Credit Spreads for a $.35 Credit Open 11 January 36/38 Put Credit Spreads for a $.26 Credit Total Credit: $.61 Max Profit Potential: $575 (36.46%) Max Risk: $1625 Current Profit/Loss: -$41
Does anyone have ideas on adjustments for Credit Spreads and Iron Condors? I've read of about 5 or 6 different types of adjustments but I've not been able to derive a good systematic plan for adjusting other than rolling if the short strike is threatened. And even then, do I roll all at once? When is the optimal time? etc... I know there are lots of traders much more experienced than I here and I'd really be interested in hearing about how you work.
I'm likely going to update this thread each day after the close so that I can update closing prices and latest profit and loss. These are all live trades and I am risking real money with them. I'm also going to add my adjustment points into the trade. I don't necessarily know what adjustment I'll do when it hits but I'll take a look and choose something. I'm adding another trade today. I didn't open it today but it is live. So I don't take a huge amount of space up, I'll keep the trades I track here to a total of 3 or 4. I have a total of 11 positions open right now although some will be closed out in the next week with December expiration. ================================ Iron Condor (New) Underlying: SPY Opened: 12/1/09 Open 10 January 115/117 Call Credit Spreads for a $.51 Credit Open 7 January 102/105 Put Credit Spreads for a $.49 Credit First Adjustment (High): 113.50 First Adjustment (Low): 107.00 Total Credit: $1.00 Max Profit Potential: $777 (41.22%) Max Risk: $1323 Current Profit/Loss: $23 ----------------------------------------------------------------- Iron Condor (Updated) Underlying: EWZ Opened (1st Leg): 12/10/09 Open 5 January 64/68 Put Credit Spreads for a $.51 Credit First Adjustment (Low): 70.50 Total Credit: $.51 Max Profit Potential: $231 (13.5%) Max Risk: $1769 Current Profit/Loss: $11 ----------------------------------------------------------- Iron Condor (Updated) Underlying: EEM Opened: 12/4/09 Open 11 January 51/53 Call Credit Spreads for a $.35 Credit Open 11 January 36/38 Put Credit Spreads for a $.26 Credit First Adjustment (High): 44.00 First Adjustment (Low): 39.00 Total Credit: $.61 Max Profit Potential: $575 (36.46%) Max Risk: $1625 Current Profit/Loss: -$8
Actually, this is a forum name that I've used for many years in other venues (although I honestly can't remember its significance.)