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.

July was another good month as the ASX200 index stayed in a narrow range for the duration of our trade. The XJO settlement price was 5558.6 upon options expiry on July 17 so all the options in our July XJO iron condor expired worthless. We got to keep the entire premium received which was $1880 after brokerage costs.

So far we have had 7 winning months and collected $14,100 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.

I looked to open our August trade on July 11, which was about 6 weeks to expiry. From the probability chart that day, I could see that puts sold at 5275 and calls sold at 5700 will have around 90% chance of expiring worthless.

Just like our July trade, I sold a 200 point put credit spread (5275/5075) for a net premium of 11 points or $1100 for 10 contracts. I sold a similar 100 point call credit spread at 5675/5775 for a net premium of 5 points or $1000 for 20 contracts.

By selling both call and put spreads, we collected a total of $2100 just like previous months. The total margin required for this iron condor is $17,900. 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 August is $1,980 which we will get if XJO is trading between 5275 and 5675 when these options expire on August 21. XJO was trading at around 5490 when the trade was opened on July 11. While our profit is similar to July, you might have noticed that the width of our iron condor is narrower. The width of our July iron condor was 475 points (5675 – 5200) but the width of our August iron condor is only 400 points (5675 – 5275) due to the low volatility. A big market move might see our August iron condor get into trouble which is why it is important to have a clear risk management plan in place.

As our maximum profit is around $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 August trade expires on August 21. 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.

6 Responses to XJO Iron Condors July Update

  1. BL says:

    Christina, for comparison, could we see a spreadsheet of the wing size, sold spreads, probabilities and volatility for each month?

    • Christina says:

      I normally place the short strikes at close to 90% probability but sometimes have to drop 1-2 strikes for calls in order to get sufficient premium.

      I will try to put together a spreadsheet as requested and include that in the August update.

  2. Paul says:

    Are Iron Condors a worthwhile strategy? If you suffered the maximum loss on this trade of $14,000, it would mean you would have an overall profit of $100 for 8 months trading.

    • Christina says:

      Paul, our profit target per trade is 10% and the Probability of Profit (POP) of our trading strategy is 90%. This means in the long run, we expect 90% of our trades to be winners and 10% to be losers. If we can make 10% in our 9 winning trades, we will still be up 20% overall even if we lose 70% (that’s what the $14K is equivalent to in percentage terms) in our 1 losing trade, The other thing I have not discussed is the probability of hitting maximum loss in our losing trades. I will write more about this in my next update.

  3. Jason says:

    Hi Christina,

    Would you close out your position and take profit before expiration?

    From my experience, the directional risk for the last week before expiration is very high when the short strike is close to the price where the AP is trading. For exmaple, for Aug AP option, I have a 5650 short call on, I could’ve closed it last week for a nice profit, but the brutal rally of this expiration week turns a winning position into a losing one.

    I would love to hear your thoughts and experience on managing winners.

    Cheers,
    Jason

    • Christina says:

      Hi Jason
      Yes, I would normally take profit when I have captured 80% of my maximum profit. In my personal account, I closed my August 5150 short puts on 23/7 and my August 5700 calls on 8/8 when they both reached this profit target. There is no much reason to leave them on to collect the last 20%. I prefer to reuse the capital on more profitable trades. You can find more discussion on trade management in my August update.

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