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The S&P finds itself yet again, right in the middle of this short-term range it’s been in since early February.

–  So choppy markets
–  Up / down whipsaw action
–  Middle of a range
–  No clear directional bias
–  Elevated volatility

Is there a trade set up that’s ringing a bell here?  Yup you guessed it, the Iron Condor.  We’ll go ahead and open another one here but it’s slightly different from our usual one in that the expiry dates are not ideal.  For Iron Condors I only trade the monthly cycle options.  They have the most consistent liquidity and I find they are the most predicable around option expiration so I always stick to the monthly contracts.  (I do have a “go-to” option trade strategy that uses the weekly contracts but we’ll have to wait for volatility to be lower to introduce that one)

June expiry –  48 days
July expiry –  83 days

Option trading is usually a trade off between Theta decay and Gamma risk.  (again refresher course on option Greeks here if you don’t know about them yet).  Theta decay works in our favor with each passing day, but Gamma risk elevates every day we move closer to expiry so there’s a trade off.

For more daily Theta decay we want to go closer to expiry, but to reduce Gamma risk we want to go further away.  It’s the old risk reward trade off.  I’ll do a full article on this in the future, but for me personally I find the ideal days to expiry  (DTE)  for a new Iron Condor is 55 – 60 days.

The June 48 DTE is inside that range and the 83 DTE is outside it.  As a more conservative investor I will always default to the longer dated contracts  (see why longer dated option contracts are safer here).  So we’ll go ahead and do the July 83 DTE.

1 year S&P 500 chart

The two white lines show that short-term range and we’re right in the middle.  The big white circle is the expiration of our Iron Condor showing how wide the wings are when we go that far out in time.

Now remember we never hold options anywhere close to expiry  (Gamma risk is too high)  so we’ll close this one out in a few weeks most likely, but that chart shows the market neutral aspect of the Iron Condor.  This trade profits from choppy directionless markets.  If things switch into a strong trend, that’s what stop-losses are for.

* premium may change throughout the day so as with all option trading, we just try for the best price in the moment.  For iron condors since we sell them for credit, the higher the price the better.

Since we’ve got 83 days to expiry this is considered a slow moving trade.  It’ll be more insulated against market movement, but the Theta decay will be slower as well.  I like to diversify my investments by mixing up the trade types, expiry dates, and entry and exit points so this fits in well with that philosophy.

 

Current VTS Total Portfolio Solution Allocations

10% VTS Conservative Vol Strategy  –  Optional replacement for lower risk tolerance investors

10% VTS Aggressive Vol Strategy  –  Optional replacement for higher risk tolerance investors

50% VTS Tactical Balanced Strategy

20% VTS Iron Condor Strategy

10% VTS Discretionary Strategy

Temporarily paused:  VTS Tactical Volatility Strategy

 

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