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

Our February iron butterfly was closed on 29 Jan when it hit our stop loss target of $375 per contract. XJO had a “melt-up” in February after a trifecta of good news of a trillion dollar QE program by the European Central Bank, a rate cut by the RBA and a 20% recovery in crude oil prices, so it was good that we closed our trade early or else we could have suffered a much bigger loss as shown in chart below:

We track our monthly performance in a similar fashion as our first XJO Iron Condor Model Portfolio i.e. without including brokerage cost as this will vary from broker to broker. Our performance as at Feb 2015 is a net loss of $126.

I opened our March trade on 5 Feb 2015 which is 42 DTE. XJO was trading around 5770 at the time. As the market had surged so quickly and many of the market leaders (e.g. CBA and TLS) will be going ex-dividend soon, I expect some pull back before the March expiry on 19 March.  Instead of selling an ATM iron butterfly, I decided to sell a slightly OTM IB at 5400/5650/5800. OTM butterflies are usually cheaper than ATM butterflies. IV rank was 57% when I opened the trade and I managed to collect 168 points of credit for this 250 point iron butterfly. Hence the maximum profit for 1 contract is $1680 and the maximum loss is $820 ($2500 – $1680 received). Our breakeven points for this trade are 5482 (5650 – 168) and 5818 (5650 + 168).

I will provide a monthly update on this XJO Iron Butterfly portfolio. The next update will be in early March 2015.

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.

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