DIA Position Update
Listed below is the status of our April DIA Iron Condor trade as of Wednesday April 14th. This position has been open for 23 days:
The entire position is approx. $700 in the red
We are closing out the entire call spread for an approx. $1,570 loss (see tables below)
We are recommending letting the put spread expire worthless for an approx. $860 profit (see tables below)
We are opening May expiration DIA Iron Condor.
DIA closed at $111.29 on Wednesday (37 days to expiration)
DIA is priced ABOVE its current 14-day EMA (see DIA chart down below)
DIA is trading ABOVE its 20-day Bollinger Band SMA, and 50-day simple moving average (see DIA chart)
DIA is well ABOVE its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) is EXTREMELY bullish (See DIA chart)
Moving Average Convergence/Divergence (MACD) bullish (See DIA chart)
30 day Historical Volatility is 6.53%, Implied Volatility is higher at 13.26% - both volatility numbers are near 52 week lows, which is considered bullish
Upper range standard deviation is .84162, the lower range is -.84162
Use the number of days to expiration, volatility number and the standard deviation to calculate the 80% statistical probability for the option price to close within our short strikes at expiration.
We want the DIA Bear Call spread short strike to exceed defined resistance levels :
$111 calculated based on previous intraday highs and technical resistance levels
$113 equals the upper price level of our 80% statistical probability range
$112 is the upper level of the Bollinger Band â€“ Upper solid purple line in the DIA chart below
The Bull Put spread short strike price should be below defined support levels :
$108 calculated based on previous intraday lows and technical support levels
$109 equals the lower price level of our 80% statistical probability range
$104 is the lower Bollinger Band level â€“ Lower solid purple line in the DIA chart below
We want the DIA Iron Condor to generate a minimum .50 net credit on each leg AND we prefer that the short strikes fit our statistical probability profile (80% chance all the options will expire worthless and we get to keep most of the sold premium). The spread in tables below comply with our trading rules for initiating the May option expiration month DIA Iron Condor (based on Wednesday's closing prices). The recommendation is to submit a limit order to purchase/sell the option strikes prices below.
Premium Credit $1.02
Total Option Premium Received $2,040 (Excludes commissions and fees)
Maximum Risk $5,960
Margin Requirement $8,000
20 contracts traded on each leg (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade; this will impact Total Premium Received, Maximum Risk amount, and Margin Required)
As with initiating the trade, the decision process for exiting our DIA Iron Condor position will be simple:
Anytime the market maker is willing to accept a limit price of less than .11 on one of our short strikes, buy back all the short contracts and sell the long positions on the same spread.
If one of our short strikes is penetrated (closing price above our short call or below the short put) AND after market close, if the delta associated with one of the short strikes is .65 or higher we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself. If one of our short strikes has been violated and there is no price reversal, we cut our losses and live to fight another day.
We are opening the DIA Iron Condor as separate order with four legs each. Exiting these positions prior to expiration we will probably â€œleg outâ€ of the trade by first unwinding either the bear call spread or the bull put spread; and close out the other side of the spread as a separate order. The timing of closing out each side of the Iron Condor is dependent on following our Exit Rules described above.
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.