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.