iShares Russell 2000 ETF (IWM)
With the Russell 2000 ETF (IWM) trading for 183.51, I want to place a short-term iron condor going out 38 days. My intent is to take off the trade well before the October 21, 2022, expiration date.
IV: 29.85%
IV Rank: 49.0
Expected Move (Range): The expected move (range) for the October 21, 2022, expiration cycle is from 171 to 196.
Call Side:
Put Side:
The Trade
Simultaneously:
- Sell to Open IWM October 21, 2022, 203 call strike
Buy to Open IWM October 21, 2022, 208 call strike - Sell to Open IWM October 21, 2022, 163 put strike
Buy to Open IWM October 21, 2022, 158 put strike
…for a total of $0.77 (As always, the price of the spread can vary from the time of the alert, so please adjust accordingly if you wish to take on a position.)
Delta of spread: 0.00
Probability of Profit: 90.93% (upside) – 85.20% (downside)
Probability of Touch: 18.33% (call side) – 28.95% (put side)
Total net credit: $0.77
Total risk per spread: $4.23
Max return: 18.2%
Risk Management
Since we know how much we stand to make and lose prior to order entry we can precisely define our position size on every trade we place. Position size is the most important factor when managing risk, so keeping each trade at a reasonable level (I use 1% to 5% per trade) allows not only the Law of Large Numbers to work in your favor … it also allows you to sleep well at night.
I tend to set a stop-loss that sits 1 to 2 times my original credit. Since I’m selling the 203/208 – 163/158 iron condor for roughly $0.77, if my iron condor reaches $1.54 to $2.31, I will exit the trade. As always, I will keep you updated on the status of the position as it progresses and send any necessary updates.
If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.