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

Our February 2016 iron condor was one of our longest and most uncomfortable trades.  We opened the trade on 6 Jan with 43 DTE, when XJO was trading around 5180. XVI was at 18.64 giving us an IV Rank of 33%, which is above the acceptable level for entering a trade according to the Trading Plan for our Mark III model portfolio.  The market fell hard after we opened our trade and our short 4900 put was ITM for quite a number of days as shown in the chart below. We came close to breaching our loss threshold on 18 Jan when the market fell to a new low of 4804. A brief rally in the last week of Jan brought our trade into profit and we were one point short of our 50% profit target on 1 Feb. All our unrealised profit evaporated as the market fell again after that day.

XJO chart as at 5 Feb 2016

I decided to close the February trade for a small profit on 5 Feb after being in the trade for 30 days. Rather than wait and hope to reach our 50% profit target when the market is trading dangerously close to our short put with only two weeks to expiry, I prefer to close the trade and put on another trade where the short strikes are comfortably OTM. We sold the Feb iron condor for 46 points and bought it back for 37 points, giving us a small profit of 9 points.

We track our monthly performance without including brokerage cost as this will vary from broker to broker. Our performance as of February 2016 is a total profit of $4200 or a 21% return on our trading capital of $20,000 for this model portfolio.

XJO IC Performance as at Feb 2016

Tasty Trade has recently done an interesting study to find out the optimal profit target for managing winners in iron condor trades. For 20 delta iron condors, it looks like the “sweet spot” is 40% which has the highest profit per day as shown in the chart below. The study also found that managing winners at 40% had a higher winning percentage compared to managing at 50% (85% vs 81% when no loss threshold is used). We will not change our trading plan for this Mark III model portfolio but we may be better off managing winners at 40% rather than 50% when trading 20 delta iron condors.

Varying profit targets for 20 delta IC

Source: Tasty Trade video – Iron Condors | Varying Profit Targets

We put on our March trade on 5 Feb, with 41 DTE. XVI was around 22 which works out to an IV Rank of 48%.I will provide another update on this model portfolio after the March trade is closed.

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.

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