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 March iron butterfly was closed on Mar 16 when it hit our profit target of $250 per contract. With strong support for XJO at 5750 and XJO trading at 5800 with 3 days to expiry, I did not think our 5400/5650/5900 IB had a good chance of hitting our profit target. As per our normal practice, I had a good-till-cancelled (GTC) order to close our iron butterfly when our profit target is reached. I was very surprised when I logged in that day to find this order had been filled shortly after market opened! The closing trade looked very strange as we were able to sell our very far OTM 5400 put for 13 points when we could buy our 5650 put back for only 1 point. We would normally expect the 5400 put to be worth less that the 5650 put.
We were very lucky our GTC order was filled at such a good price. This is one of the reasons why I do not like to put GTC orders for stop losses as they can sometimes just as mysteriously get filled at prices that do not make sense.
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 Mar 2015 is a net profit of $144.
I opened our April iron butterfly on 19 Mar 2015 which is only 28 DTE. I decided to wait until both the RBA and the US Fed had made their respective announcements before putting on our trade as these announcements tend to have a huge impact on our market. XJO was trading at around 5950 at the time so I sold an ATM IB at 5700/5950/6200. IV rank was 37% when I opened the trade and I only managed to collect 132 points of credit for this 250 point iron butterfly. This credit collected is much lower than previous months due to the lower IV. The maximum profit for 1 contract is $1320 and the maximum loss is $1180 ($2500 – $1320 received). Our breakeven points for this trade are 5818 (5950 – 132) and 6082 (5950 + 132).
I will provide a monthly update on this XJO Iron Butterfly portfolio. The next update will be in April 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.