I’ve been running Iron Condors on the RUT too, starting last month. Of course, with the market’s explosive upward movement I managed to get completely overrun and had to roll out my position to avoid a total loss. Unlike Mantis, who has a completely normal IC going right now, I’m sitting on a wonderful 680/730 IC, so I will be hosed if the market goes bearish. Hopefully we see a bit of resistance at 700 but no real downturn over the coming weeks. Once I’m able to recoup last month’s losses, I can set up a normal IC for May. But that’s a month away, so we’ll have to take it as it comes.
I’ve decided to post my monthly RUT strategy along with any adjustments that need to be made.
For the April expiration, I opened an Iron Condor (IC) on the RUT. What is an Iron Condor? Its a combination of a Bear Call credit spread, and a Bull Put credit spread. You can google it for more info on the strategy.
What is the RUT? Russell 2000 Index is a cash settled index that is settled based on the RLS ticker on final expiration day. RLS represents the opening trade of all the stocks on the RUT on expiry day and is usually settled after about an hour.
Now that the basics are out of the way, here is my April Iron Condor with real money. RUT was trading around 675 when I opened the trade on 3/17/2010.
Buy 630 Puts @ 3.12
Sell 640 Puts @ 4.11
Sell 730 Calls @ 1.19
Buy 740 Calls @ .68
Net Credit: $1.50 per share or $150 per contract (each contract is 100 shares).
$1000 margin requirement per contract.
$150 / $1000 = 15% return on investment, total potential loss of $850 ($1000-$150) per contract
When I opened the Iron Condor, the probability that the RUT would stay between 640 & 730 was 76%. As of the time of this post 5 days later, the probability has increased to 80%. Probability is calculated based on current price, time remaining till expiry, and volatility. Its a tool provided by my broker.
There you have my first IC. If I need to adjust because the RUT is getting within the danger zone I’ll post that too. Otherwise hope to see you around April expiry as I post my May IC.
Over the last year, I’ve been playing around in the market. Stocks are fun but options and margins are where the real fun (read risk) is at. I’ve had my rear handed to me for the most part. Losing real money over the last year has taught me more than just messing around with a virtual account. But now I’m trying a new strategy in net credit Iron Condors on the Russell 2000. As long as its managed, it gives you the opportunity to get cash up front, and move your positions if the situation gets hairy. Let’s see what the next year brings.