November 2, 2023

Cabot Options Institute Quant Trader – Quick Update (SPY Iron Condor)

S&P 500 ETF (SPY)

Well, there is no doubt that our SPY November 17, 2023, position has been a wild ride. We decided to leg into this one by selling the SPY November 17, 2023, 452/457 bear call spread. Several days after the market presented us the opportunity to leg into the other side of our iron condor. We sold the SPY November 17, 2023, 408/403 bull put spread. In total, we were able to bring in $1.32 worth of premium for our SPY November iron condor.

Late last week we decided to buy back our bear call spread as it was worthless. Due to the two-week pullback, we were able to buy our bear call spread back for a $0.71 profit. However, the market was now testing our 408/403 bull put spread, so shortly after we locked in the profits of our 452/457 bear call spread ($0.71), we decided to sell another November 17, 2023, bear call spread, this time at the 430/435 strikes. We were able to bring in another $0.58. As a result, our total premium for the iron condor is $1.87. Again, $0.71 for our 452/457 bear call spread, $0.58 for our 408/403 bull put spread and another $0.58 in options premium for our newly added 430/435 bear call spread.

Of course, shortly after we sold our SPY 430/435 bear call, the market has managed to tack on roughly 5.0% with a sharp gap up today. So, we’ve quickly gone from short-term oversold to short-term overbought. And the quick market turnaround has pushed our overall position into negative territory. We were trying to keep the deltas as neutral as possible by adding the 430/435. The trade had over an 86% probability of success, and while we knew we were in oversold territory we did not expect the market snapback would be 5% in just four trading sessions.

So now the spread stands at roughly $2.75. We could buy it back now and take a relatively small loss on the trade (-17.6%) and simply move on to the next opportunity. Or stay in the position a little longer, keeping our stop loss around $3.20, which means we would take an overall loss of $1.33 ($3.20 - $1.87) or roughly 25%.

Here is the trade if you wish to exit. I plan on holding on, understanding that SPY could see another gap higher if AAPL comes out with a positive response to earnings, but I’ll quickly exit at $3.20. And who knows we might get there before the day ends. As always, I will send a trade alert as a reminder I’m exiting the trade.

The Trade

Simultaneously:

Buy to Close SPY November 17, 2023, 430 call strike
Sell to Close SPY November 17, 2023, 435 call strike
Buy to Close SPY November 17, 2023, 408 put strike
Sell to Close SPY November 17, 2023, 403 put strike … for a total of $2.75. (As always, the price of the spread can vary from the time of the alert, so please adjust accordingly.)

Andy Crowder

Andy Crowder is a professional options trader, researcher and Senior Analyst at Cabot. Formerly with Oppenheimer & Co. in New York, Andy has leveraged his investment experience to develop his statistically based options trading strategy which applies probability theory to option valuations in order to execute risk-controlled trades. This proprietary strategy has been refined through two decades of research and real-world experience and has been featured in the Wall Street Journal, Seeking Alpha, and numerous other financial publications. Andy has helped thousands of option traders learn and implement his meticulous rules-driven options trading strategies through highly attended conferences, one-on-one coaching, webinars, and his work as a financial columnist. He currently resides in Bolton Valley, Vermont and when he’s not trading, teaching and writing about options, he enjoys spending time with his wife and two daughters, backcountry skiing, biking, running and enjoying all things outdoors.