Tomorrow is Iron Condor Day

What Is an Iron Condor?

An iron condor is an options strategy consisting of two puts (one long and one short) and two calls (one long and one short), and four strike prices, all with the same expiration date. The iron condor earns the maximum profit when the underlying asset closes between the middle strike prices at expiration. In other words, the goal is to profit from low volatility in the underlying asset.

https://www.investopedia.com/terms/i/ironcondor.asp

Before we do that, remember to determine the probability of the trade to go south. We also have to determine the Standard deviation of the underlying /Stock. Options are DERIVATIVES. Their value derives from an underlaying assets, the stock or something else. It is a contract with obligations and rights between buyers and sellers if exercised. This is what we trade for the most part.

Tomorrow

We determined our Entries for the Short legs of the wings. 3rd Standard Deviation or a DELTA of =<10%

We collected our data from 5 years back and run them in Excel to determine standard deviation and probability of the trade. 

Remember, we want to be the bank in the Casino. 

We want to make the money.

We dont play the slot machines and rely on luck.

We have our "visual" Distribution curve with the Deviation, the mean and skewness, our statistics of the data sample.

Yes, we do our data on a weekly background! Then Excel will tell you everything else. What Call to buy or sell and what Put to buy or sell. It calculates the Premium collected. Here a $1.62 per contract times 100 shares. So 5 contracts make you $810.00 on contracts. Since the price at expiration cannot be on both strikes at the same time one side will always win. The 3rd Standard deviation also guarantees you with an average moving market up or down or sideways to make your money. Here the Short Put Strike has a chance to get triggered of 0.78%!

Why is this significant?

It means that out of 100 trades only less than 1 trade will hit the strike in an average market. 99 trades will make the total amount. At the strike the trade is not lost yet since the other side is much in the profit. We can either close it for a small loss and move on or we roll it out into the next month and collect more credit or we roll only the untested side to stay in the profits. There should even less loser then. 

We can also generate predictions what the average price of the underlaying should be if the market goes bad for 2,3, or 4 weeks in a row. This is indicated by the Avg Worst case Up or Down trend. We see that an average moving market will never hit the strike even after 4 weeks. We plan to hold the position for a max of 3 weeks and then close it for whatever profit. Of if it hits 50% profit before we also close it and establish a NEW position with new Strikes! So we also always stay out of trouble and the bank turns in money on a weekly base.

With the Volatility Index VIX we see that the markets are going up quite well. VIX is down. It was that far down last February 2020 before the Black Swan event, the China Virus. It is sailing much below the monthly average, the orange line. Very good environment for Iron Condors.

Thats it! Simple. No guessing involved. Only numbers and probabilities to consider. Stack the odds in your favor.