Cabot Options Institute Quant Trader – Alert (SPY)
S&P 500 ETF (SPY)
With the S&P 500 ETF (SPY) trading for 418, I want to place a short-term iron condor going out 45 days. As always, my intent is to take off the trade well before the December 15, 2023, expiration date.
IV: 20.5%
IV Rank: 39.7
Expected Move (Range): The expected move (range) for the December 15, 2023, expiration cycle is from 398 to 438.
Call Side:
Put Side:
The Trade
Simultaneously:
- Sell to Open SPY December 15, 2023, 445 call strike
- Buy to Open SPY December 15 2023, 450 call strike
- Sell to Open SPY December 15, 2023, 380 put strike
- Buy to Open SPY December 15, 2023, 375 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.)
*Our margin of error is roughly 6.5% to the upside and more than 9.0% to the downside over the next 45 days.
Delta of spread: 0.00
Probability of Profit: 89.45% (upside) – 88.67% (downside)
Probability of Touch: 22.67% (call side) – 20.79% (put side)
Total net credit: $0.77
Total risk per spread: $423
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 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 450/445 – 380/375 iron condor for roughly $0.77, if my iron condor reaches approximately $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.
