S&P 500 ETF (SPY)
Volatility popped a bit today and even though I would like it to be slightly higher, I’m going with a high-probability iron condor to bring in a bit of income. Hopefully, we continue to see volatility, as seen through the VIX, push above 15. If so, more trading opportunities should present themselves.
With the S&P 500 ETF (SPY) trading for 474, I want to place a short-term iron condor going out 59 days. As always, my intent is to take off the trade well before the March 15, 2024, expiration date.
IV: 15.2%
IV Rank: 16.5%
Expected Move (Range): The expected move (range) for the March 15, 2024, expiration cycle is from 455 to 494.
Call Side:
Put Side:
The Trade
Simultaneously:
- Sell to Open SPY March 15, 2024, 505 call strike
- Buy to Open SPY March 15, 2024, 510 call strike
- Sell to Open SPY March 15, 2024, 440 put strike
- Buy to Open SPY March 15, 2024, 435 put strike … for a total of $0.66. (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.)
*Our margin of error is roughly 6.3% to the upside and more than 7.4% to the downside over the next 59 days.
Delta of spread: 0.01
Probability of Profit: 91.07% (upside) – 86.77% (downside)
Probability of Touch: 16.91% (call side) – 27.22% (put side)
Total net credit: $0.66
Total risk per spread: $434
Max return: 15.2%
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 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 510/505 – 440/435 iron condor for roughly $0.66, if my iron condor reaches approximately $1.32 to $1.98, 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.