When to allow exercise or roll your options? Alan Ellman provides guidance....
Options Expert Eyes Iron Condor Trade
05/04/2017 2:45 am EST
I am going with a conservative trade in our Iron Condor portfolio, notes technical expert Andy Crowder in Options Advantage, an advisory service designed for sophisticated options traders.
I want to place an iron condor trade in the SPDR S&P 500 ETF (SPY) going out roughly 45 days with the intent of taking the spread off with roughly 20-30 days left until expiration.
We can create a large range with a nice probability of success. If SPY stays within our 31-point range of 225-245 we will make 22.0% on the trade.
Here is the trade:
The following are options with 44 days left until expiration.
Sell to open the SPY June 2017 245 calls
Buy to open the SPY June 2017 247 calls
Sell to open the SPY June 2017 225 puts
Buy to open the SPY June 2017 223 puts for roughly $0.36
Do not accept less than $0.36 credit to enter this trade. Enter this trade as a spread to avoid paying double commissions.
The goal of selling the SPY iron condor (credit) spread is to have the underlying ETF, in this case SPY stay between the 245 and 225 strikes through June expiration in 44 days.
Here are the parameters for this trade:
- The Probability of Success – 85.37% (call side) – 86.10% (put side)
- The max return on the trade is the credit of $0.26 or 22.0% based on the required margin ($164) over the next 44 days.
- Break-even level — $245.36 - $224.64.
- The maximum loss on the trade is $1.64 (remember — that's really $164 per contract)
My intent, as always, is to take the trade off early, preferably within the next 20 days. Of course, Mr. Market will dictate our actions.
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