Medium term
Trade view / 03 October 2016 at 1:06 GMT

S&P500 looks rangebound as US presidential election approaches

Product Manager Futures and Options / Saxo Bank
Denmark
Background

We are selling a $5-wide iron condor using the cash index SPX (S&P 500). The market is likely to continue to grind along in a range in the lead-up to the presidential elections in the US on November 8, and possibly beyond. 

Volatility has increased in the last couple of days as investors became uncomfortable with certain banks on both sides of the pond. The increased volatility means more premium to sell.

Management and risk description

The iron condor consists of two vertical spreads (a short vertical call spread and short vertical put spread) and gains from the underlying price remaining in between. Hence, a neutral market strategy is appropriate. 

The strategy allows for some movement to the downside (about 4%) as well as to the upside (+3%), and it is a defined-risk strategy.

Parameters

Underlying price: S&P 500 @ 2164

Buy 1 18 NOV 2225 Calls
Sell 1 18 NOV 2220 Calls
Sell 1 18 NOV 2075 Puts
Buy1 18 NOV 2070 Puts
---------------------------------------------
Net Credit $2.35

S&P500 index
SPX





















Maximum gain: $2.35, at expiration
Maximum loss:  $2.65, at expiration

Rate of return: 88%

Entry: Today.

Target: The index to remain between 2075 and 2220.

Time horizon: 40 days.

— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more
03 October
Harry Lime Harry Lime
Hello Georgio, why are you using the index option instead of the usual SPY?
03 October
Georgio Stoev Georgio Stoev
Good question Harry Lime as I have to admit SPY is my favorite product to trade, due to the ample liquidity. Probably the most liquid option contract out there.

SPX had a slightly better IV and hence better premium than the SPY, by about 4%.
03 October
Harry Lime Harry Lime
Clear. Thank you, Georgio
05 October
LucaF LucaF
Hi Georgio, may I please ask, you have recently opened a Calendar Spread on the SPY, based on the same outlook (S&P moving sideways). Are you actually suggesting that it may make sense to have both positions open? Or are you just showing two different alternatives to trade the same concept? Thanks in advance, Luca

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