Note to new readers: This is a regular update on the status of our XJO Iron Condor Model Portfolio. Please read the setup post first in order to understand the objectives and the rules for trading this model portfolio.

With the XJO index settlement price (also known as the Opening Price Index Calculation or OPIC) at 5277.4 upon options expiry on Jan 16, all the options in our January iron condor expired worthless. We got to keep the entire premium received which was $1840 after brokerage costs and achieved our target of 10 per cent per month as shown below.

For our February trade I put on half of our position on Jan 13 which was about 6 weeks to expiry. I was able to get a similar amount of premium as our January trade which was $1000 for 10 contracts as shown below. Just like January, the options sold were trading at deltas of close to 0.1.

I put on the other half of our position on Jan 17 after the January index option expiry date. With only 5 weeks to expiry, the option premiums were lower and I was only able to get $700 for our iron condor as shown below:

From the above, it looks like we will need to open our XJO iron condors at least 6 weeks before expiry if we want to collect premiums of $2000 or more to achieve our 10% per month target.  To do this, we need to put on the next month’s trade before the expiry of the current month’s trade. For example, we should open our March Iron Condor (which expires on Mar 20) on Feb 7 which is about 2 weeks before the expiry date of our February Iron Condor on Feb 20. We can only do this if we have enough cash to cover the margin needed for both months as margin is tied up until the options expire. This is not a problem if we trade with only half of our account each month which is in line with our conservative money management strategy as discussed in our XJO iron condor setup post. For our model portfolio, let’s assume we start with a capital of $40,000.

For February, $1700 is our maximum profit which we will get if XJO is trading between 5025 and $5500 when these options expire on 20 Feb 2014. The margin required for this trade is $18,300 ($20,000 – $1700). This is also our maximum loss which we will incur if XJO is trading below 4900 or above 5600 upon option expiry. Hence the potential return for this trade is around 9.3% ($1700 / $18,300) before commissions. XJO was trading at around 5300 when both the trades were opened on Jan 13 and Jan 17 respectively.

I will provide another update after the February trade expires on Feb 20. If there are any readers out there who are trading XJO iron condors, I would like to hear from you. Please share your experience by leaving a comment or sending me an email.

Disclaimer: This post is for educational purposes only and should not be treated as investment advice. This strategy would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek investment advice if required.

4 Responses to XJO Iron Condors January Update

  1. Jason says:

    One problem I have with putting on iron condor in XJO is that the ROC is low. Most of the time, in order to get the range wide enough, we need to put up 10 times capital to make 1. The risk/reward is 9:1, which isn’t very appealing, don’t you think?

  2. Christina says:

    Hi Jason,
    The risk/reward for iron condors may be low but the probability of winning is high. The ICs that we are doing have probabilities of approx 80% of expiring worthless. What we are hoping to achieve is 9-10 winning trades out of 12 per year.

    In contrast, other strategies such as buying OTM options may have high risk/reward but the probability of winning is low (like buying a lottery ticket).

    With proper money management, you can be achieving an average of 30-40% return on capital per year, which to me is still quite appealing 🙂

    • Jason says:

      Hi Christina,

      I totally agree with you on the probability of winning. With lower profitability of one trade, it comes with higher probability of winning.

      One question regarding IC on XJO. I know you put in all the legs of the IC simultaneously. Have you tried to leg into the position at different time?

      As the vol in AP isn’t particularly appealing in the previous few months, legging in may probably increase the probability of winning. (Although, it means you hold a certain degree of directional assumption).

      • Christina says:

        Legging in at different times implies we know how to pick direction correctly. If you are someone who thinks you can pick direction, then you could leg in or simply sell credit spreads in the direction that you are assuming. I notice this is what 10percentpermonth has been doing e.g. they only sold bull put spreads in many months last year as the US market was very bullish.

        Our model portfolio makes no directional assumption and simply relies on probabilities to help us get winning trades. This method would suit traders who do not believe they can correctly predict market direction.

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