SPDR S&P 500 ETF (SPY)
All right, let’s get back at it.
As stated on our subscriber call today, I’m going to sell an iron condor in SPY and intend on adding, at least, two more trades over the next week. Volatility, as seen through the VIX, has kicked up to roughly 17, so it’s time to sell some premium.
Our recent profit in SPY marks 33 out of 38 winning trades since we started Quant Trader just over one year ago. Moreover, our total return is now hovering around 150%.
That being said, don’t get overconfident and decide to alter your risk-management approach. Losing trades will occur, that is a guarantee. Proper risk management is what truly separates those that are successful over the long term versus those that continue to be challenged.
S&P 500 ETF (SPY)
With the S&P 500 ETF (SPY) trading for 440, I want to place a short-term iron condor going out 64 days. As always, my intent is to take off the trade well before the October 20, 2023, expiration date.
IV: 18.49%
IV Rank: 20.2
Expected Move (Range): The expected move (range) for the October 20, 2023, expiration cycle is from 418 to 462.
Call Side:
Put Side:
The Trade
Simultaneously:
- Sell to Open SPY October 20, 2023, 470 call strike
- Buy to Open SPY October 20, 2023, 475 call strike
- Sell to Open SPY October 20, 2023, 390 put strike
- Buy to Open SPY October 20, 2023, 385 put strike … for a total of $0.70. (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.)
*Our margin of error is roughly 6.8% to the upside and more than 11.3% to the downside over the next 64 days.
Delta of spread: -0.04
Probability of Profit: 88.92% (upside) – 89.06% (downside)
Probability of Touch: 19.15% (call side) – 22.05% (put side)
Total net credit: $0.70
Total risk per spread: $430
Max return: 16.3%
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 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 475/470 – 390/385 iron condor for roughly $0.70, if my iron condor reaches approximately $1.40 to $2.10, 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.
