This trading plan was created on 5 June 2015 for the XJO Iron Condor (Mark III) Model Portfolio.
- To achieve a 15-20% total return on capital annually
- To achieve 10% return on capital per trade by collecting an initial credit of 20% of capital per trade and closing trade when 50% of max profit has been achieved
- To avoid large losses i.e. limit max loss to 100% of credit collected (or 2 x target profit)
- Sell iron condors with short strikes at 20 delta i.e. roughly 20% probability of expiring in-the-money (ITM) with 30-56 days to expiry (DTE)
- Take profit when 50% of max profit has been achieved
- Open iron condors with 30-56 DTE after previous month’s trade has been closed
- Sell at strike prices close to 20 delta
- Close trade when profit target is reached. Our profit target is 50% of premium collected. Set this up as a GTC (Good-till-cancelled) order after trade is opened.
- To avoid big losses, we will check our positions after market close daily and close our trade if unrealised loss >= credit collected
- Close any open trades 1 week before expiry to avoid gamma risk. This will also allow us to place the next month’s trade with 35 or more DTE
Risk Management rules
- We will manage our risk upon order entry. The best time for opening iron condors is when the Implied Volatility (IV) is high so we will not trade when IV is not in our favour when we open our trades. We will only place a trade if IV Rank is >= 30%. IV rank is calculated using the value of XVI, the 30 day implied volatility of XJO using the formula below:
- IV Rank = (current XVI price – 52 week low) / (52 week high – 52 week low) x 100
- Taking losses is part of our strategy. We will avoid big losses by closing trades when the unrealised loss exceeds the premium collected.
Money Management rules
- We will allocate 50% of initial capital (e.g. $10K for a $20K account) to each trade.
- As our loss threshold is set at 100% of premium collected, our initial risk per trade would be roughly 20% of capital allocated to the trade or 10% of our initial capital.
- We will place a new trade only after the previous one has been closed.
- Calculate IV rank. Trade only of IV Rank is >= 30%
- Check options have at least 30 DTE