Week #17 - April 25 Option Trade
- Closing "4" SPY Jun 16 for a profit
- Why Close the position today?
- Selling before BIG adjustment impact option prices
- History of this trade.
- "4-5-6" Social Media Option Trading Challenge --> What is that?
- What next?
Closing "4" SPY Jun 16 for a profit
This trade is part of my "4-5-6" Options Trading Challenge for 2023. See below for more information.
Here is the trade as of 10:30 am (EST):
- Closed "4" June 16 SPY Iron Condor for $0.78 (Debit).
- Opened "4" Aug 18 SPY Iron Condor for $1.11 (Credit).
- The profit has nothing to do with the difference between these two trades ($1.11 - $0.78).
You need to go back to the original POST where the position was OPEN. Since that time, I rolled the open a few times for more premium.
Why Close the position today?
Why did I not close it last week? Why not wait until next week?
Some of these questions are very hard to answer.
Let me try to explain my view on the markets. I have been looking for a recession to hit the markets. But the last 8-10 week has mostly been GREEN markets. That means my IRON CONDORS were being TESTED on the CALL LEGS (or starting to lose money on the CALL SIDE). I rolled the UNTESTED SIDE of the trade (the PUT LEGS) for more premium and decided to wait for this "Mean reversion" effect. Sure, there is a risk of me being wrong.
Today, if you look at the price between the PUT LEGS and the CALLS LEGS, you will see that the CALL options are worth only $0.59 for June 16 440. At the same time, the June 16 356 PUTS are now $1.31!! So the RISK is shifted from the CALL LEGS to the PUT LEGS.
This is the reason why I decided to close today. RED Market DROP faster than GREEN markets rise. To reduce risk, I rather take my profit now and open a new position with a much lower Strike price on the PUT side.
Selling before BIG adjustment impact option prices
As I write this, the markets are going much lower than when I sold. If the markets continue to go into 1%-1.5% losses, the IV on the option prices will increase, reducing my profit on this trade.
History of this trade.
To see the history, here is the ETRADE view below. I summarized it into a pivot table, and over the last 9 weeks, I only made 11% on this trade. I used $4K to make only $444 on this trade. Most people think trading like this is not worth the risk. I disagreed, so I posted my trades at the time of opening. Most trades will never post all their moves in advance. There is a reason for this. They don't know if they will WIN or LOSE money on the trade.
As for me, I feel confident that I can show that my trades are profitable and that I can do this consistently for years.
I added the color so you can follow the "4" Contracts of SPY since Feb 23, 2023. I used the blue boxes to mark the "4" contracts. As you can see, I have a "5" and a "6" Contract going on simultaneously.
"4-5-6" Social Media Option Trading Challenge --> What is that?
In 2022, I did a "2-3-4" challenge using 9K cash and trading only Iron Condors on SPY all year. Since I use 10 wide, each contract requires 1K in cash. Since I can never have more than 9 total contracts open at any given time, that is 9K cash. This was done to show how you can trade in "smaller" accounts. That challenge was so popular that I decided to continue a new one for 2023.
"4-5-6" was born from the success of the "2-3-4" method I used in 2022. Here are the parameters of "4-5-6":
- Trade only lots of "4-5-6" contracts, but never more than 15K at any given time. But you can have two "4" open at the same time. Only allow those lots. This makes it very easy to "follow."
- Use only SPY options.
- Always use 10 wide between the long/short leg of the position (1K) of buying power needed.
- Always post on social media at the time of the opening/rolling on Twitter / Facebook, etc.
Part of what made this popular was the transparency of the trades.
What next?
Since I'm limited to what types of trades I can do, I generally will OPEN a new position based on the old one I closed. Today I closed a "4", so my new position is also a "4". I already have a "5" and "6" open. The only difference is I picked an expiration that I have not used yet and I adjust the STRIKE price based on where the market is at today.
The markets feel "weak" during this early part of the earning season. Therefore, I structure this trade with LESS PUT risk and more risk on the CALL side. The other thing to consider is how are the other trades are structured.
The June 30 "6" SPY Iron Condors were structured with minimal risk. So when I opened the August trade, I did not need to do anything to "OFFSET" or "HEDGE" against that risk.
All I need to do is continue making safe trades right now. The ability to add risk or NOT is what I believe is the key for me to make a decent return right now without RISKING too much to chase returns. There is always market risk. If the MARKETS drop 3% tomorrow, that can cause PAIN for all traders, including my trades.
Have a profitable day,
Solving-Chaos