Strategic trade
Trade view / 10 November 2016 at 17:01 GMT

Trade View: Dealing with the volatility in US T-bonds — #SaxoStrats

Product Manager, Options Trader, Educator
Denmark
Price target:
Market price:
Background
The long end of the US bonds has been under pressure as yields have spiked. This has caused the volatility to increase which in turn has increased options premium, for both calls and puts. 

We believe that prices will stabilize over the next 36 days or at least trade in a range. As a result, we are initiating this $2-wide iron condor. In addition, to augmented premium the wings of short strikes are out of the money with low delta, as seen in the ticket below. This gives us a good probability of success.

TLT
 
Management and risk description
The iron condor is defined risk strategy as it is consisted of short call spread (long/short call) and a short put spread (long/short put). Moreover the risk is contained within the width of the vertical spreads. The above example uses a $2-wide spread, which is the maximum loss minus any credit.

Parameters
Underlying price: 124.17

Underlying symbol: TLT

Buy +1 December 16 129 Call 
Sell -1 December 16 127 Call
Buy +1 December 16 117 Put
Sell -1 December 16 119 Put
-----------------------------------------
Net credit  $0.84

Maximum gain: premium received or $0.84

Maximum loss: strike prices - premium received or $2 - $0.84 = $1.16

* above numbers at expirations
Entry: today
Stop: no stop
Target: bonds to trade in range, below 127 call and above 119 put
Time horizon: 30 days 

Five-year chart (click to enlarge)
TLT
 Source: Saxo Bank

— Edited by Clemens Bomsdorf

Non-independent investment research disclaimer applies. Read more
2y
Feders Feders
Hi, thanks for the trade idea. When are we going to have available the combination order en saxotrader and saxotradergo?
2y
Georgio Stoev Georgio Stoev
It'd be on the SaxoTrader very soon.
2y
Feders Feders
I didn't understand quite well this part " In addition, to augmented premium the wings of the short strikes have a width of one standard diviation or 68.7% which improves the probability of success. " How is that?
2y
Georgio Stoev Georgio Stoev
The short strikes are away apprx 1 std dev from market price
2y
Georgio Stoev Georgio Stoev
It should be 68,27%. Missed the 2:)
2y
Feders Feders
oh! very well!. Thank you sir!
2y
Kurdeul Kurdeul
An excellent trade idea ... either the market has moved or I'm confused about the 1 STDEV .. shouldn't the short strikes be at least 0.16 delta for 68-70%?
2y
Georgio Stoev Georgio Stoev
at the time of sale, delta on short put was close to .20. A little skewed to the downside to allow for any furthe move down.
2y
Kurdeul Kurdeul
That is what I thought ... many thanks!
2y
Georgio Stoev Georgio Stoev
You are welcome. Thx

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