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.
Another month has passed and it is time for another update on our XJO iron condor model portfolio. June was another good month as the ASX200 index stayed in a narrow range for the duration of our trade. The XJO settlement price was 5433 upon options expiry on June 19 so all the options in our June XJO 4925/5725 short strangle expired worthless. We got to keep the entire premium received which was $1920 after brokerage costs.
So far we have had 6 winning months and collected $12,100 in gross premiums as shown in the table below. We will track our performance is a similar manner as 10percentpermonth.com, who do not include commissions as this will vary from broker to broker.
As discussed in my May update, we cannot do short strangles with a $40,000 account because we do not have enough capital to cover the margin required. Hence, we will go back to doing iron condors for our July trade. I looked to open our July trade on June 6, which is about 6 weeks to expiry. From the probability chart (click to enlarge) that day, I could see that puts sold at 5200 and calls sold at 5700 will have around 90% chance of expiring worthless.
We will also need to buy “insurance” options further out-of-the-money to limit our margin required. However, we will not be using these insurance options for managing risk as we still want to limit our maximum loss to 7 times premium received so that our trading system will have positive expectancy as discussed in our April update. We will continue to manage risk by setting stop losses to close our short option positions. As we are not using the insurance options to manage risk, I prefer to spend as little money as I can on them.
From the put option chains for July, we could get 16 points from selling puts at the strike price of 5200 and it only costs 6 points to buy puts at the strike price of 5000, giving us a net premium of 10 points for this put credit spread. By selling 10 contracts of the 5200 / 5000 put spread, I collected a total of $1000.
I tried to sell a similar 200 point call credit spread at 5700/5900 but I could not get my order filled on June 6. Although there was an ask price for 5900 calls, I could not buy them. I tried to sell the bear call spread when the market reopened on June 10 but I could not get much premium for 5700 calls so I decided to sell 5675 calls instead and I had to do a 100 point spread so I could get my order filled. I collected a net premium of 5 points or $1000 for 20 contracts.
By selling both call and put spreads, we collected a total of $2000 just like previous months. The total margin required for this iron condor is $18,000. As we only traded 10 contracts for our put spread, the commission was halved for this spread as shown in our brokerage statement below.
Our maximum profit for July is $1,880 which we will get if XJO is trading between 5200 and 5675 when these options expire on July 17. XJO was trading at around 5483 when the trade was opened on June 10.
As our maximum profit is $2000, our maximum loss should be limited to $14,000 (7 x $2000). After putting on the iron condor trade, I put in a stop loss order to buy back our short put options at 160. If the stop loss gets triggered, we will be buying 10 contracts back for $16,000. After deducting the $2000 we have already collected, we would have a net loss of $14,000.
I also put in a stop loss order to buy back our short call options at 80 points. If the stop loss gets triggered, we will be buying 20 contracts back for $16,000. After deducting the $2000 we have already collected, we would have a net loss of $14,000.
I will provide another update after the July trade expires on July 17. 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. Thank you to all who have done so already.
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.