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. September was another good month. Despite two sizable corrections, the price of XJO stayed comfortably within the short strikes (5275 and 5750) of our 475 point wide September iron condor.

The XJO settlement price was 5421.1 upon options expiry on September 18 so all our September options expired worthless and our net profit was $2080 after brokerage.

So far we have had 9 winning months and collected $16,960 in gross premiums as shown in the table below. We will track our performance in a similar manner as 10percentpermonth.com, who do not include commissions as this will vary from broker to broker.

As volatility had gone back to up to a more “normal” level, I decided to go back to doing 6 week iron condors. Another reason for not wanting to open an 8 week October trade right after the August expiry was because XJO had just breached the top of the Bollinger Band (BB) on August 21 as shown on the chart below so a reversion back to the mean was quite likely. I decided to wait and see if the XJO price would fall back towards to the middle of the band before putting on our Oct trade. Volatility (and consequently option premium) increases when prices fall so there were good reasons to wait.

I like to check the BB before I put on a trade. As we can see from all the green circles in the chart above, a reversal frequently happens whenever the BB is breached. If you like “legging” into your iron condor trades, then a breach of the top band would be a good time to sell call spreads and a breach of the bottom band would be a good time to sell put spreads. I made good money in my personal account selling October put spreads on 8 August when the bottom BB was breached. On 12 September, the bottom BB was breached again so I took the opportunity to take profit and close all my September positions early. I managed to buy back the 5625 short calls mentioned in my August update at a profit. A strong rebound in the following week could see these calls go ITM at option expiry on 18 September so I prefer to take profit early and reuse my capital to open a more profitable November put spread. Of course a rebound did not happen this time and XJO has fallen even lower since Sept 12.

After waiting two weeks, the anticipated reversal still had not happened yet so I opened the October trade for our model portfolio on 5 September, about 6 weeks to expiry. As per our normal practice, we used the Probability Chart to choose the strike prices for our short options with close to 90% OTM probability.

As the market seems pretty bullish at the time, with XJO making new 5 year highs in August, I decided to widen our call spreads from 100 points to 200 points, just like our put spreads. Had we done 10 contracts of 200 point call spreads instead of 20 contracts of 100 point call spreads in August, the losses on our call spread would have been halved when our short calls expired ITM. I sold a 200 point call credit spread (5850/6050) for a net premium of 7 points or $700 for 10 contracts. Wider spreads are safer but often less profitable compared to narrower spreads. Similarly, I sold a 200 point put credit spread (5400/5200) for a net premium of 10 points or $1000 for 10 contracts.

By selling both call and put spreads, we collected a total of $1700 which is less than previous months. The total margin required for this iron condor is $18,300 so we will be unable to meet our 10% profit target this month. Our maximum profit for October is $1,620 which we will get if XJO is trading between 5400 and 5850 when these options expire on October 16. XJO was trading at around 5620 when the trade was opened on Sept 5. The width of our October iron condor is 450 points (5850 – 5400).

I will provide another update after the October trade expires on October 16. 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 taken the time to share your knowledge with me.

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.

5 Responses to XJO Iron Condors September Update

  1. Jason says:

    Hi Christina,

    Thanks for sharing your updates on the monthly AP iron condor.

    I have a similar iron condor on for Oct expiry (200 wide spread with short strikes at 5400/5700).

    With a rapid drop of over 6% over the last two week, now sp200 is at 5300. I closed my 5700 calls early and sold 5600 call for more premium on the day when sp200 rebounded a bit.

    I would love to know how you manage your iron condor in a situation like this.

    Kind regards,
    Jason

    • Christina says:

      Hi Jason
      It looks to me our ICs are quite different. Your 5700/5400 IC is only 300 points wide so it looks like you are selling at strike prices with lower OTM probability for more premium. By rolling the 5700 down to 5600, your IC is now only 200 points wide and is more like a butterfly rather than iron condor. Although 5600 seems a long way above current XJO price, it is still below the previous highs which was around 5679. I don’t think I would be comfortable holding a short strike at below 5679. It was not very pleasant to watch my Sept 5625 go ITM in the rebound rally and see it remaining ITM right up to the last week before expiry.

      Christina

      • Jason says:

        Hi Christina,

        I had my Sep 5650 go ITM during the last 2 days before expiry as well. Not a pleasant experience.

        As for my IC, I skewed to the downside as I was quite bearish when I entered. I have closed out the 5600 short call with recent short drop.

        I guess what concerns both of us is the short put strike 5400 which is ITM right now. Do you do any adjustment?

        The IV is above 13 now.

        Jason

        • Christina says:

          As mentioned in my August update, research has shown there is no benefit in rolling positions on the tested side so I would prefer to leave my 5400 puts alone.

          • Jason says:

            Hi Christina,

            The Dow was down 2.5%+ on Friday. Looks like ASX will open down on Monday. Did you adjust your AP put side?

            Jason

Looking for something?

Use the form below to search the site:


Still not finding what you're looking for? Drop us a note so we can take care of it!

Visit our friends!

A few highly recommended friends...

Archives