Short term
/
Sell
Trade view / 18 August 2017 at 15:48 GMT

Options strategy for a consolidating S&P 500 index

Product Manager, Options Trader, Educator
Denmark
Price target: 2426
Market price: 2426
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Background

The US markets have been rocked with geopolitical uncertainty this week, with the S&P 500 down more than 1.5% in the last two trading sessions. As stock prices drop, investors look for protection which often means buying/selling options on their holdings. A surge in demand for options typically lifts the premium, and this is what we have seen in the last few days. 

 S&P 500 E-mini options
E-mini volatility
Source: Quikstrike

Such an environment provides a good opportunity to enter an iron condor (short calls spread + short put spread) and collect premium in a risk-defined way.

In addition to the elevated premium, the iron condor will take advantage of any consolidation that may take place. The short spreads are 120 points apart.
SPX IC
Source: Saxo Bank

Management and risk description

The potential for profit and loss are limited with an iron condor. Adhere to money management rules based on your account size. 

* European style options, no fees included


SPX
Source: Dynamic Trend

Parameters

Underlying: S&P 500 Index (SPX) Options

Status: opening

Trade: Sell -1 Iron Condor SPX 100 (Weekly) 22 SEP 17 2485/2490/2365/2360 at 2.05 or better

Max Gain: 2.05 or $205 per contract (at expiration)

Max Loss: 2.95 or $295 (at expiration)

ROR: 70%

Entry: today (using multi-leg ticket)

Source: Saxo Bank


Stop: no stop, will provide updates as needed

Target: underlying price to end between short strike prices

Time horizon: 20-25 days


— Edited by John Acher

Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here
1y
ashrafj1 ashrafj1
Hi Georgio , I can not find above menu in SAXO trader, can you please advise with screen shoot from Saxo Trader
1y
Georgio Stoev Georgio Stoev
The ticket is not in Saxo Go, web-based. it's in the downloadable desktop under Options Trading.
1y
KS Lau KS Lau
Hi Georgio, what is strategy to avoid either one leg from getting ITM? Do rolling or simple going ITM by getting assigned and trade it future?
1y
Georgio Stoev Georgio Stoev
There are a few ways to defend the iron condor. we generally don take any action till 7-10 days to expiration
If the put spread is violated with 7day TE we'll roll down the call spread with higher delta. Rolling the whole strategy is also an option, as is adding a butterfly spread.
1y
Georgio Stoev Georgio Stoev
... but we never close it out early as we are selling OTM short calls with delta of .30
1y
Pandorra Pandorra
Hi Georgio, could you please explain ur strategy in SPX digits as simple as u can. I guess the way is to upperside of the channel, aprr. to about 2460.
1y
Georgio Stoev Georgio Stoev
We usually use a combination of technical analysis and probabilities, e.g. option expiring OTM, to determine which levels to sell. We did a webinar with my friend Shawn Howell last year on the strategy. Please check it out (June 1st 2016) and I can send you the notes if you'd like.

https://www.home.saxo/education/webinars?list=archive&cat=OptionsLab
1y
Georgio Stoev Georgio Stoev
So far this year we are 5 for 5 on the strategy...
1y
Pandorra Pandorra
Thanks Georgio, I'll check the link. However could you please clarify ur basic view os SPX.
I guess it is on route to 2460..
1y
Georgio Stoev Georgio Stoev
at the moment it's neutral - hence the strategy

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