I have been back testing an IWM Iron Condor, which has a very simple and basic trade management structure.
As an alternate, or in addition to, the larger indices such as SPX and RUT, some of you may want to incorporate a strategy on an ETF such as IWM into your trade plan.
My back testing is still in progress, but I wanted to share the basic trade setup and management with you so that those with back testing capabilities can begin to test the strategy.
The trade is entered on a Monday, for the weekly cycle expiring in 11 days.
Below is a graph of a sample IWM Iron Condor for the cycle expiring on June 14. This is not meant to be a trade recommendation, but for illustrative purposes only.
IWM Iron Condor
SELL short call and short put with delta of approximately 20 or less. This is an 80% probability that the options will expire out of the money.
BUY call and put 5 points up or down from the short strike.
Credit: Minimum credit to enter the trade should be $.60
- Wait at least one hour after market open before entering. Exact entry time is trader's choice.
- Look at economic news for the day. If there is potentially market moving news being announced, do not enter the trade in advance of the news release.
- If the price of IWM moves +/- a one-day, one standard deviation, do not enter the trade until the movement is less than a one-day, one standard deviation. As of today, this is approximately one point according to the calculation on my broker's trading platform.
Planned maximum capital allocation is $500 per contract (width of the wings). In a Reg-T account, your broker will hold the $500 less credit received as maximum margin/risk and option buying power. (Example: $500 margin less $70 credit = $430 buying power effect before commissions).
- Target gain is 5 percent of planned maximum capital, or $25 per contract.
- Trade is to be exited if a 8% loss (again, based on maximum allocated capital), or $40 per contract.
- If either short strike is reached, position is to be exited.
If you have questions on the basic trade setup, please send me an email. I will update you later in the week on the back testing results to determine if a trade entry will be recommended for next Monday.
As always, it is recommended to back test the strategy thoroughly, and paper trade it before putting on a live position. It's always best to have a complete understanding of any new trade, before putting one's own money in the position.
Stay keen on your risk management and trade carefully,p>