In mid-February I sent an Options Education article highlighting a trade Cabot Options Trader Pro subscribers had just executed. To refresh, this was in the midst of a steep market decline and the VIX was exploding higher. The trade was a short volatility spread that was essentially selling insurance that the S&P 500 wouldn’t fall by 17% or rise by 11%. Here are the details from that February 6 trade alert:
Iron Condor: Sell S&P 500 ETF (SPY) September 220/215 Bull Put Spreads and Sell 295/300 Bear Call Spreads
The VIX is spiking, and the markets are moving violently. When this will end is truly anyone’s guess. However, option volatility is getting to good levels to sell.
Because of elevated volatility, I am going to sell an Iron Condor, which is a short volatility trade. This position will make money if the SPY doesn’t fall by 17% or rise by 11%.
To execute this trade, you need to:
Sell to Open September 220 Puts, and
Buy to Open September 215 Puts, and
Sell to Open September 295 Calls, and
Buy to Open September 300 Calls.
The ideal spot for the trade is the SPY trading between 220 and 295 on September expiration. It’s unlikely that we’ll hold the position until it expires. It’s a volatility scalping trade that, if it goes well, we will buy back for an approximate 15% profit in the next month or two.
And while there has been daily market volatility since we initiated the trade, the market is essentially unchanged since we sold this spread. And today we took half of this trade off. This was today’s Cabot Options Traders Pro trade alert:
Existing Position: Close Half your S&P 500 ETF (SPY) September 220/215 – 295/300 Iron Condor for $0.60 or less.
In early February as the market melted down and option prices went crazy, we sold an Iron Condor to capitalize on the panic. This trade is working perfectly as the VIX has calmed down, and the market is essentially unchanged from our original sale level. The Iron condor that we sold for $1.26 is now worth $0.60, or a potential profit of 17.6%.
I’m going to take off half of this trade this morning, and let the remainder decay further in the coming months.
To execute this trade, you need to:
Buy to Close HALF the September 220 Puts,
Sell to Close HALF the September 215 Puts,
Buy to Close HALF the September 295 Calls, and
Sell to Close HALF the September 300 Calls.
This trade couldn’t have worked better. We sold premium/insurance when others were panicking, and are being rewarded for it.
I was not filled at $0.60, and sent a follow up alert to raise the price. We were then filled at $0.61.
As you can see, similar to Cabot Options Trader, I lay out the exact details and risks of trades for Cabot Options Trader Pro. However, the difference in the services is that with Cabot Options Trader Pro I have the ability to recommend trades such as this Iron Condor, Bull and Bear Call Spreads and all strategies that are a part of my trading repertoire.