Another week; another record close - SPY Iron Condor Setup for August.
The bulls remained in control Thursday in the shortened trading week after a positive jobs report; SPY closed at 198.20, another record closing high. Last week's volume was much lower than usual as trader's took off for the beaches, so it will be interesting to see if the strength of the trend continues as they return to work tomorrow.
SPY 6 month chart:
Monday will be 39 days to June expiration, so I will look to open this monthly position sometime next week.
To recap the guidelines for this trade entry:
- Sell a short strike with a delta in the .15 - .20 range.
- Buy a long strike 5 points away from the short.
Minimum credit (for both sides) according to the guidelines should be at least .80. With the VIX at its 7 year low (closing Thursday at 10.32), it may be necessary to either settle for a lower credit this month. More aggressive traders may choose to sell a higher delta to receive a better credit, accepting a higher risk by being closer to the short strikes.
The economic calendar is light for the coming week; the big news event is the release of the FOMC minutes on Wednesday afternoon. With some of the recent economic indicators improving, analysts will likely be looking for signs that an interest rate hike could be coming sooner rather than later. If the minutes produce any surprises, we could see the market get shaken up a bit. If there is not sufficient credit to enter the position Monday or Tuesday, it is recommended to wait until after the minutes are released before entering Wednesday.
- Target gain is 10% of the actual margin/risk. This is calculated by the width of the wings (5 points in this case = $500), less the actual credit received. For a one-contract trade using the minimum credit of $.80, the margin/risk is $420. Target gain in this example is $42.
- Maximum loss is 15% of the margin, or $63 using this same example.
- This position will be traded as a "no touch"; it will remain open as long as SPY remains between the short strikes, until the target gain is reached. The position will be exited at either short strike or the pre-set 15% max loss.
Having said that, it is a traderâ€™s individual decision whether to wait for target gain, or max loss, on any position. Trading is a blend of oneâ€™s individual style, risk tolerance, and intuition. This combination can help reach your annual trade plan results. I recommend following your own trade style; there is nothing wrong with exiting a position early. Remember, trading is an art, not a science.
I will post entry details next week when the position is opened.
As always, trade carefully and stay keen on your risk management.