Live: Monday, December 23, 2019

2:35 p.m. New York time

Looking ahead.

Friday is management day for my two short iron condor positions based on options expiring next Friday, January 17. At present, TLT is at 34% of maximum potential profit, and XLY is in a loss status. So, if those numbers held, on Friday I’d exit TLT and hold XLY until it either showed a profit or was close to expiration.

On Friday, January 7, I enter positions based on options expiring February 20. It isn’t the best of environments for trading short iron condors, which require higher implied volatility. My rule is to trade them at a 25% Implied Volatility Rank. At present, only one (!) symbol qualifies for a short iron condor: TLT.

So what’s a neutral structure for trading low volatility symbols? For that, I’m trying something new: The calendar spread, which is a two-leg trade with strikes at the money. It can be built of calls if I’m expecting a drift upward in the price of the underlying, or puts if I’m expecting a lower tendency. Either will work if the symbol is stuck in neutral (best case).

One of the strikes is from the current cycle, expiring February 21 in this case, and is sold for credit. The other strike is from the next cycle, expiring May 15 (unless a new series is added), and his bought for a debit. The combined position is a net debit.

I’ll manage the calendar spreads at 25% of maximum potential profit, which is an estimate in the case of calendar spreads, and sell all profitable positions at 21 days prior to the short option’s expiration. Unprofitable positions will be held to expiration.

Symbols with an IVR of 15% or lower will qualify for a calendar spread. At this point that includes the metals (GDXJ at an IVR of 7%), energy (XLE at an IVR of 6%), and the blue chips (SPY at 4%).

Some resources from TastyTrade, my go-to place for understanding options trading:

Both are excellent.

1 p.m. New York time

Two symbols in my Growth Portfolio failed to qualify, and I have exited each for a profit:

  • AUY for a $3.56 credit, up 4 cents per share. The position produced a 1.1% return over 26 days, or a +16% annual rate.
  • CNXM for a $15.93 credit, up $1.44, a 9.9% return over 20 days for a +181% annual rate.

I continued my build-out of the Genetics Portfolio, adding CGEN for a $5.96 per share debit.

By Tim Bovee, Portland, Oregon, December 23, 2019

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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Based on a work at www.timbovee.com.