Cabot Options Institute Quant Trader – Alert (IWM)
Russell 2000 ETF (IWM)
With the Russell 2000 ETF (IWM) trading for 172.95, I want to place a short-term iron condor going out 57 days. As always, my intent is to take off the trade well before the May 19, 2023, expiration date.
IV: 28.1%
IV Rank: 14.3
Expected Move (Range): The expected move (range) for the May 19, 2023, expiration cycle is from 159 to 187.
Call Side:
Put Side:
The Trade
Simultaneously:
- Sell to Open IWM May 19, 2023, 191 call strike
- Buy to Open IWM May 19, 2023, 196 call strike
- Sell to Open IWM May 19, 2023, 147 put strike
- Buy to Open IWM May 19, 2023, 142 put strike … for a total of $0.83. (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 10.4% to the upside and more than 15.0% to the downside over the next 57 days.
Delta of spread: -0.05
Probability of Profit: 88.01% (upside) – 88.18% (downside)
Probability of Touch: 11.99% (call side) – 11.82% (put side)
Total net credit: $0.83
Total risk per spread: $417
Max return: 19.9%
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, smaller accounts tend to use a higher percentage, closer to 10%) 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 196/191 – 147/142 iron condor for roughly $0.83, if my iron condor reaches approximately $1.66 to $2.49, 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.
Cabot Options Institute Quant Trader – Alert (DIA)
Dow Jones ETF (DIA)
I want to add some downside exposure so with the DIA trading for 323.20, I want to place a short-term bear call spread going out 29 days and outside of the expected range to the upside, or 336. My intent is to take off the trade well before the April 21, 2023, expiration date.
IV: 19.8%
IV Rank: 16.5
Expected Move (Range): The expected move (range) for the April 21, 2023, expiration cycle is from 310 to 336.
Call Side:
The Trade
Simultaneously:
Sell to Open DIA April 21, 2023, 338 call strike
Buy to Open DIA April 21, 2023, 343 call strike for a total of $0.62 (As always, the price of the spread will vary, so please adjust accordingly.)
Delta of spread: -0.08
Probability of Profit: 85.25%
Probability of Touch: 14.82%
Total net credit: $0.62
Total risk per spread: $4.38
Max return: 14.1%
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 338/343 bear call spread for roughly $0.62, if my bear call spread reaches $1.24 to $1.86, 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 as needed.