Dropping a RUT Iron Condor for a SPY Short Strangle – Video Post


I guess sometimes we can’t get the trades we want and in those cases it’s usually better to wait another day or go play another game.  I decided to go play another game . . . of sorts.  A while back I mentioned that I would trade a RUT Iron Condor as part of the diversified trend following portfolio.  While I had really good intentions of doing that, selling a naked SPY strangle was a better option.

Last week I tried to get filled on a roughly 15 delta RUT Iron Condor and could not get a decent price.  One of the great things about the RUT is that the large size makes it easy to save on commissions, but sometimes the fills seem poor.  I personally find it painful to start RUT Iron Condors down $20 so I try to place an order that will get filled if the market moves against the trade or a bad order comes through the market.  Last week I had orders in to sell an iron condor for a few days and just couldn’t get filled.  I finally decided to look at a short strangle in the SPY instead.

The trade:

11/14/13 Sold the January 2014 188 Call/162 Put SPY Short Strangle for .96 with 64 days to the January expiration.  I was looking for options with a short delta of around 10, but the call side didn’t have very much premium because implied volatility is so depressed.  As a result, I moved up to an 11ish delta on the call.  I’m aiming to collect roughly 60% of the premium ($56) and willing to risk the same amount (my max loss).  My initial adjustment points will be triggered if the spread is down $20, which is about 1/3 of the way to my max loss.

The video:

the video below goes through adjustment points, the adjustment strategy, and the target.  Enjoy.


Trade risk graph:

January 2014 SPY Short Strangle 188 Call/162 Put
January 2014 SPY Short Strangle 188 Call/162 Put