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 April iron butterfly was closed on April 2 when it hit our profit target. We managed to reach our profit target in only 14 days!

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 April 2015 is a net profit of $404.

After trading iron butterflies in the past 4 months, I am starting to like them more than iron condors. Below are a few reasons:

  • Our profit target of $250 per contract (or 10% of spread width) is similar to what we collect in our iron condor model portfolio. It normally takes us 45 days to achieve this profit for iron condors as we need to wait until option expiry. We are able to achieve this profit target in far less time with iron butterflies. In two of our winning months (January and April), we managed to hit our profit target in roughly two weeks.
  • Iron butterflies are easy to manage. We can place a GTC (good until cancelled) order to close our trade when it hits our profit target. There is no need to watch the market closely unless XJO is trading outside of our breakeven points. It is a pleasant surprise to log in and find the order filled, often well before options expiry!
  • Trading iron butterflies is a lot less stressful. We normally collect premium which is 50-70% the width of the spread which means our maximum loss is limited to 30-50% which is much less compared to the 90% maximum loss in our iron condors. Although we plan to close our trade when our losses are at 1.5 times the profit target, we can rest assured our losses will not be too big even if we are unable to get to a computer to close our trade when the market makes a big move!

I opened our May iron butterfly on 16 April 2015 which is 35 DTE. XJO was trading at around 5940 at the time so I sold an ATM IB at 5700/5950/6200. IV rank was 37% when I opened the trade and I managed to collect 138 points of credit for this 250 point iron butterfly. The credit collected is similar to what we collected last month. The maximum profit for 1 contract is $1380 and the maximum loss is $1120 ($2500 – $1380 received). Our breakeven points for this trade are 5812 (5950 – 138) and 6088 (5950 + 138).

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