Cabot Options Institute Quant Trader – Alert (IWM)
We still have an IWM iron condor open for the October 21, 2022 expiration cycle that currently stands in profitable territory, but given that we are only 45 days away from the November 18, 2022 expiration cycle I want to begin the process of selling more premium. We sold some bull put spreads yesterday which thankfully are doing well, and plan on selling some bear call spreads before the week is over, but today I want to focus on selling an IWM iron condor for the November 18, 2022 expiration cycle.
iShares Russell 2000 ETF (IWM)
With the Russell 2000 ETF (IWM) trading for 174.86, I want to place a short-term iron condor going out 45 days. My intent is to take off the trade well before the November 18, 2022, expiration date.
IV: 34.56%
IV Rank: 67.9Expected Move (Range): The expected move (range) for the November 18, 2022 expiration cycle is from 160 to 190.
Call Side:
Put Side:
The Trade
Simultaneously:
- Sell to Open IWM November 18, 2022, 198 call strike
Buy to Open IWM November 18, 2022, 203 call strike - Sell to Open IWM November 18, 2022, 143 put strike
Buy to Open IWM November 18, 2022, 138 put strike…for a total of $0.64 (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.)
Delta of spread: 0.02
Probability of Profit: 90.48% (upside) – 90.49% (downside)
Probability of Touch: 19.37% (call side) – 18.48% (put side)
Total net credit: $0.64
Total risk per spread: $4.36
Max return: 14.7%
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 (I use 1% to 5% per trade) 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 198/203 – 143/138 iron condor for roughly $0.64, if my iron condor reaches $1.28 to $1.92, 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.
If you have any questions, please do not hesitate to email me at andy@cabotwealth.com.
