WOW33 How to build Iron Condor Guest: Shawn Howell, Pro Market Advisors LLC Host: Georgio Stoev, Product Manager Saxo Bank June 3, 2016
Iron Condors A Friend When There is No Trend.
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Options transactions are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. For more information, please read the Characteristics and Risk of Standardized Options brochure before you begin trading. Moreover, there are specific risks associated with buying options including the risk of the purchased options expiring worthless. Also, there are specific risks associated with selling cash secured puts including the risk that the underlying stock could be purchased at the exercise price when the current market value is less than the exercise price the put seller will receive. Because of the importance of tax considerations to all options transactions, the investor considering options should consult his/her tax adviser as to how taxes affect the outcome of each option strategy. Commissions and other costs may be a significant factor. This seminar is provided to you for educational purposes only. No information presented constitutes a recommendation to buy, sell or hold any security, financial product or instrument discussed therein or to engage in any specific investment strategy. The content neither is, nor should be construed as, an offer, or a solicitation of an offer, to buy, sell, or hold any securities. Pro Market Advisors do not offer or provide any opinion regarding the nature, potential, value, suitability or profitability of any particular investment or investment strategy, and you are fully responsible for any investment decisions you make. Such decisions should be based solely on your evaluation of your financial circumstances, investment objections, risk tolerance and liquidity needs. Supporting documents are available upon request. Securities products and services are offered by E*TRADE Securities LLC, Member FINRA/SIPC. For more information please visit our website: www.promarketadvisors.com
Iron Condors Workshop Description Most investors' profits rely on a bull market, whereas option traders and investors can profit in a bull & bear. So what's a trader to do when the market isn't going up or down? The solution: Iron Condors. Join Shawn Howell of Pro Market Advisors as he teaches you when and how to build your first Iron Condor, how to recognize the appropriate market conditions, and ways to manage risk with a multi-legged option strategy.
TREND BASED TRADING Matching Strategy to Market Trend Price Higher Highs Price Lower Highs Higher Lows Lower Lows Time Time Price Resistance Support Time
Iron Condors Key Points A delta neutral, defined-risk strategy assuming a stock/etf or index will remain within a specific support/resistance channel. Four legged option strategy combining an OTM Bear Call and Bull Put spreads. Short Call Vertical Spread Placed Above Resistance Short Put Vertical Spread Placed Below Support
RANGE BOUND MARKET SENTIMENT Conditions Well-Suited for Iron Condors Market Sentiment = Chart defines Neutral/Rangebound market Clearly definable Support and Resistance Levels Ideally, the current price is equidistant from Support and Resistance Expecting Volatility to remain the same or decrease No break-out or break-down news over the horizon
IRON CONDOR EXAMPLE Example: Iron Condor Set-up Current price is 210.00 Resistance @ 213 Support @ 207 213 212 211 210 209 208 207 206 205 EXPIRATION
IRON CONDOR EXAMPLE Writing/Selling the Iron Condor Current price is 210.00 Sell the 30 Day 213 Call for $2 & Buy the 30 Day 214 Call for $1.65 Sell the 30 day 207 Put for $2.30 & Buy the 30 Day 206 Put for $2.00 Net Credit of $.65 or $65/contract. 213 212 211 210 209 208 207 206 205 EXPIRATION
213 212 211 210 209 208 207 206 205 IRON CONDOR EXAMPLE Risk/Reward Profile Total Credit = $65/contract or per share $.65 Max Gain of $65/contract at expiration when stock is <213 >207 Risk = Width of spread ($1) credit ($.65) Risk = $.35 or $35/contract Max Loss of $35/contract at expiration when stock is >214 or <206 BEP $213.65 & $206.35 EXPIRATION
IRON CONDOR EXAMPLE Scenario #1 What You Want! Over 30 days the stock remains range bound closing at 208.5. All four legs of the Iron Condor Expire Worthless. $65/contract remains in account 213 212 211 210 209 208 207 206 205 EXPIRATION
IRON CONDOR EXAMPLE Scenario #2 Time to Close the Condor Early The first two weeks volatility increases and you start to stress. Close out the Iron Condor for Net Debit of (estimate) $.55 213 212 211 210 209 208 207 206 205 EXPIRATION
213 212 211 210 209 208 207 206 205 IRON CONDOR EXAMPLE Scenario #3 NOT the worst ending Over 30 days the stock slowly climbs higher to 213.30, an hour before the market close, the day prior to expiration. The Put Spread should Expire Worthless. The 213 Call is ITM by $.30. Buy Call to Close @ $.35 How did the P&L for this trade work out? EXPIRATION
213 212 211 210 209 208 207 206 205 IRON CONDOR EXAMPLE Scenario #4 Experiencing Maximum loss Over 30 days the price falls hard closing at 204 at Expiration. The Call Spread will Expire Worthless. The 207 Put is ITM but so is the 206 Put. The 207 Put gets assigned and the 206 Put is exercised. Same Day Substitution How did the P&L for this trade work out? EXPIRATION
Iron Condors Managing The Trade Ideally, all options will expire worthless at expiration. If price breaks through either support or resistance consider closing the threatened spread to minimize loss. If volatility increases dramatically, be prepared to close both sides of the Iron Condor. Time is on your side with Iron Condors, don t sweat the lack of movement day after day, it s what you want. Iron Condors are occasionally treated as Binary positions and left alone until expiration.
Iron Condor Case Study SPY 90 Day Chart November 6, 2015
Iron Condor Case Study SPY 1 Point Wide Iron Condor Break Even Price = $215.38 $204.62 Max Gain $215<>$205 = $38 Max Loss >$216 = $62 <$204 = $62
Iron Condor Case Study SPY 5 Point Wide Iron Condor Break Even Price = $216.23 $203.77 Max Gain $215<>$205 = $123 Max Loss >$220 = $377 <$200 = $377
Iron Condor Case Study SPY December 4, 2015
Iron Condors A Friend When There is No Trend.