Iron Condor vs. Iron Chicken

1/4/14

The Liz & Jny breakdown on iron condors:

• Iron Condor
• High IV Rank
• 45 DTE - No earnings
• Collect 33% - 40% of the width of the strikes
• If the strikes look "too close" then they probably are
• Iron Chicken
• High IV Rank
• Earnings, with High vol diff
• Collect at least 50% of the width of the strikes
• If the strikes look "too close" then they probably are

Simple decision tree:

• High IV Rank?
• YES: Earnings?
• YES: Iron Chicken
• NO: Iron Condor

TT - MM: Managing with IV Rank below 50, 01/03/14

TastyTrade - Market Measures

Normally, we manage our winners and exit our trades when we realize a certain percentage of our maximum potential profit. Assuming we entered a trade based on high IV Rank, what if we were to exit based strictly on vol contraction?

By the time IV Rank drops 30-40 points, so much premium has been pulled out of the options that it doesn't pay to stay in. If you averaged $3.69 for the first 25 days, and $3.18 for the entire 43 days, then a little algebra reveals that you only averaged $2.47 for the remaining 18 days. You'd be better off closing when the IV Rank dropped below 50 and redeploying the capital in another trade.

It also appears to be profitable to exit even sooner if the IV Rank drops 15 points or more soon after entering the trade. It is important to note that was a purely mechanical study. They closed the trades regardless of whether they were winners or losers. Perhaps even more profit would have been gained by not closing the losers until they became profitable.

End of Year Accounting

1/2/14 - Happy New Year!

While watching Swim Lessons today I learned something new and useful. Now that it's 2014 you may have noticed that the year-to-date totals on your TOS Account Statement have reset. Here's an easy way to look back at 2013.

December 2013 expiration Wrap-up

Updated: 12/24/13

Trades closed in the month of December:

# of Trades = 7

Total Profit = $10

# of Wins = 5 for $261, avg win = $52.20

# of Losses = 2 for -$251, avg loss = -$125.50

Total Risk = 1634

Total ROR = 0.6%

Avg Days in Trade = 15.7

Annualized Return = 14.9%

TOS Tip: IV Rank plot/labels with SD expected moves

12/20/13

TastyTrade Game Changers has done it again. I've been wanting to plot IV Rank but it seemed way too difficult. It turns out that the plot for IV Rank looks just like the plot for ImpVolatility; only the scale is different. Duh! (Actually, want I really want is a weighted plot. Maybe later.) They threw some threshold lines on it, slapped on some labels, and even sprinkled on a few SD move labels to spice it up. Of course, I had to hot rod it a bit.

TT - Trading Guidelines (notes by Doug W)

All below from TT Market Measures episodes, except where noted:

Strategy Selection (Sosnoff recommendations) - 19 JUL 2013

When IV Rank is high, strategies to consider:

·         Sell Strangles (higher return on capital with less capital)

·         Sell Iron Condors

·         Sell Iron Fly

·         Sell Verticals

·         Covered Calls (higher return on capital with less capital)

·         Naked Puts (higher return on capital with less capital)

In low IV environment, focus on underlyings with high IV and widen out strikes.

If IV Rank is low, strategies that benefit from volatility expansion are:

·         Double Diagonals

·         Pair trades (allows to extend duration while reducing the risk)

·         Bearish directional

·         Debit put spread (ITM/OTM)

POP and ROC considerations:

Place high POP trades while attempting to maximize ROC.  Weighted average of portfolio POP of around 65%-75%.

Custom Column: Days Until Earnings

12/10/13

This custom quote displays the number of days until earnings (shown above in the last column). If earnings are after market close then it adds .5 to the number; otherwise, it ends in .0 when earnings are before market open.

TT - WDIS: Strategy Checklist, 12/06/13

TastyTrade - Where Do I Start?

Zero Cost Collar

"A collar is an option strategy that limits the range of possible positive or negative returns on an underlying to a specific range." In other words, a collar will protect an investment against drastic downside movement by sacrificing some gains from a drastic upside movement.

A collar consists of 3 positions:

• A long underlying
• A long OTM Put (called the "floor")
• A short OTM Call (called the "cap")

By collecting more for the short call than it costs for the long put, the collar costs you nothing, and can even bring in a credit.

Suppose you owned 100 shares of TSLA, with a cost basis of $120. You believe in TSLA and are very bullish long-term. Now, suppose that TSLA is trading over $140 and you'd like to protect yourself in case the price drops.

COST Potential trades, 12/04/13

12/4/13

COST reports earnings 12/11/13 before market open. 

It has been channeling very nicely for the past year. For the past week it has been retracing from the upper resistance, and is about 1/3 from the top. As the channel is drawn, resistance will be 129.50 and support will be 118 at Jan exp.