Iron Condor With NO Potential For Loss? - Options Trading Strategies - Neutral Options Strategies
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- Опубликовано: 28 янв 2015
- Today we'll show you with live trades how we turned our original custom DIA naked put trade into a risk-free iron condor with NO possibility of losing money. Since we sold a call spread above the market and a naked put we were able to take in a credit of $1.33 overall and then used just $0.30 of that credit to buy protection as the market traded sideways.
The key here is that during all this the market did not move directionally that would have helped this position. Rather selling options and time decay proved to be the most beneficial strategy here.
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Хобби
So this is similar to a jade lizard
How often does it work out that you can have zero risk where the credit covers the spread?
Doesn't happen all the time but will happen a good deal each year depending on how many times you trade it.
Awesome video! Love the no-risk upside initially. Do you hold these to expiration or is there any assignment risk that you have to watch out for? Also, what kind of margin is required for the initial position?
Thanks!
+Jim Provenzale Glad it helped Jim! If the options are all OTM then we'll hold them through expiration and avoid the commissions needed to purchase back and close the position. If any options are ITM nearing expiration we'll close them out. Margin for the initial position was around $800 I believe
Well, I wouldn't say you have no risk on this trade. You just removed your initial risk... then after doing that, your new risk is giving back your pretty large profit that you already had (which is still risk). Your 1 point wide Iron Condor was trading around .18 (.665-.485) when recording this video so your risk is giving up the .82 on the trade.
But either way, great strategy to synthetically take some profits while still leaving the position on. I like to do this with Broken Wing Butterflies!
+Mathew Thomas Never said there was no risk at all - I talked about in the comments for the video and the video that we turned a naked position into a no-risk trade.
Conceptually fine but practically not sure how many of us will find a trade like that
Didn't say they were easy to find at all - you don't find trades like this - you adjust into them.
Hi Kirk
My question is how did you decide at the first place to sell a naked put with the call credit spread? Setting up the spread you assume ("bet") that the market goes *down*. Selling the put you assume ("bet") that the market goes slightly up or stays where it is. Protection would be *buying* the put and not selling. Or to ask similarly: what happens if your first assumption is correct and the market goes down? You can't open the put credit spread and your naked put loses $$ as fast (??) as your call spread wins.
I decided to do that position because IV was very high for DIA at the time. This means we should be net sellers of options. If the market went down we could buy back the call spread for a profit and then just hold the short DIA
+Option Alpha Kirk, sorry ~11months late, just saw your video! l want to ask you, is it because IV is contrarian, was relatively high and mean reverting, that you expected it to more likely decrease and therefore underlying DIA to increase, making the 159p cheaper to buy to complete the profit guaranteed iron condor?
surely there is extra risk if DIA continues down making the 159put overly expensive and would guarantee a loss instead?
I wonder how many people look at the P/L Open numbers on these vids. For this one at 4:54 min if you add up what's visible they have a net loss of ($23) for all trades combined and this DOES NOT include commissions. I like the information presented but the results for all visible trades leaves me wondering about their true capabilities. Results matter folks!
+Scott Logan Yep results to matter which is why we post all our live performance stats here: optionalpha.com/members/option-alpha-performance that said if you think about it we should almost always have a negative open P&L because profitable positions would have been closed and therefore not showing.
Was that hard to find? and can you do it over and over?
+Peter Higbie Not hard to find but they don't happen that often to purely rely on these for your trading.
In order to buy a put at $0.30 to stock has to be higher or vol has to drop a lot.
If neither conditions happens, and stock go down, how do you protect the position now, because the put will be very high at that point? Thanks.
In that case we could sell more calls above the market, take in more premium which would reduce our break-even points further.
I like your risk management techniques, but you never mention commisions TD Ameritrade charges $9.99 plus $0.75 per contract. This changes the risk/reward calculation. In this trade the $.30 we paid for the long put would have covered the commisions. Wouldn't it be cheaper to put a GTC order on the naked put?
That's because commission rates vary and in the case of TD I only pay $1.25 per contract with no ticket charge.
AWESOME! I GOT IT!
Thank you Very much! Clear and concise.....very good. I'll be viewing many more of your videos to learn more about trading strategies.... Fantastic.
Thanks for the info
Hi, Kirk. I just dropped by your channel and watched several your videos. I trade chinese equities market for now. But i wonder did you ever throw a webinar on option stragidies ? I like your specific trade style and would like to see your overall comprehension on this security. Good luck
Thanks for stopping by Yan! Yes we do weekly webinars which you can find out more about here: optionalpha.com/webinars and we have one this coming week on strategy selection process.
It is an awesome video.
What if at expiration, the price closed at $179.5, do we risk getting assigned or we just make $1.03-$0.5?
+jon way (picturelearning) you're risk assignment there for your short 179 calls but even still you could exercise your long 180 calls to neutralize the stock position and still come out on top with a profit.
This is great video and my question is about the naked put you sold.... means the put is not cash secured nor did you buy another put against that put.... so using margin you first do the credit spread then sold the naked put... ideally hoping the value of the stock stays below your credit spread but not too far below your the strike of your short naked put??
Yes correct we wanted DIA to say below our call spread AND above our naked put.
Great Trade
Yep worked out nice!
Awesome video Kirk, thank you for helping the investing world out there. Can you tell me how you calculate margin costs? thanks. How much did it cost you for this one?
Gavin Galazka Margin is calculated a little different for each broker but you can find this once you place the order for confirmation. I think this one was around $1,200 or so.
Great video Kirk, thanks!
Very welcome!