Apple Inc. (AAPL)

Update 6/4/2019: My short iron condor on AAPL returned, barely, to profitability, with 17 day remaining until the options expired. Under my rules, I continue to hold unprofitable positions after the 21-day mark. Afterward, rather than waiting for profit reaching the 50% of its potential maximum, I exit at any sign of a profit.

In AAPL’s case, the profit was $0.02, with an exit debit of $1.16. That price was 2.5% of maximum potential profit. This won’t be enough to cover trading fees. But that’s my problem, not the market’s. I count this as a win for my new “sudden death” strategy for exits.

AAPL fell four days into the trade and continued to fall until the exit day, when it joined the market as a whole in a sharp rise. The stock price fell $10.46 during my holding period. The implied volatility rank rose 5.1 points to 44.4% at exit, providing no help in producing a profit. (With short options positions, declining implied volatility contributes to profitability.)

The shares decline was 5.5% over 18 days, or a -112% annual rate. The options position produced a 1.7% return for a +35% annual rate.

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I have entered a short iron condor spread on AAPL, using options that trade for the last time 35 days hence, on June 21. The premium is a $1.19 credit and the stock at the time of entry was priced at $189.98.

The profit zone for this position is between $206.18 on the upside and $171.18 on the downside.

The implied volatility rank (IVR) stands at 39.

Premium:	$1.18	Expire OTM
AAPL-iron condor	Strike	Odds	Delta
Long	210.00	75.5%	27
Break-even	206.18	80.1%	22
Short	205.00	84.7%	17
Puts
Short	175.00	80.1%	17
Break-even	171.18	83.2%	14.5
Long	170.00	86.3%	12

The premium is 23.6% of the width of the position’s wings.

The risk/reward ratio is 3.2:1.

By Tim Bovee, Portland, Oregon, May 17, 2019

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4:25 p.m. New York time

And the day ends without a fill on my exit order on the IYR iron condor. The closing bid/ask midpoint was $0.18.

1:20 p.m. New York time

I’ve entered a short iron condor position on AAPL.

10:15 a.m. New York time

I’ve re-established my exit order on IYR for a debit of $0.19. The bid/ask midpoint is now running at $0.14. My remaining positions —  UNH, XBI, XLB and XOP — remain within the call and put short strikes. All five positions are short iron condors with very wide short strikes. In building them I aimed at delta 20 or smaller for each short leg, which produces a profit zone covering around a one standard deviation or more.

By Tim Bovee, Portland, Oregon, May 17, 2019

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1:40 p.m. New York time

I’ve updated my CGC entry analysis with results.

1 p.m. New York time

My exit order on CGC has been filled for a $0.49 debit, with shares trading at 45.29. Full results to follow.

9:50 a.m. New York time

I’ve re-entered exit orders on my short iron condors on CGC and IYR, both of which are approaching 50% of maximum potential profit, which is a signal to exit the positions under my rules.

CGC is trading at $0.51, and my ask price is $0.49. IYR is trading at $0.20 and my exit price is $0.19.

My other positions, also short iron condors, remain in the profit zone but have yet to approach the 50% of max mark. They are UNH, XBI, XLB and XOP.

By Tim Bovee, Portland, Oregon, May 16, 2019

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3:25 p.m. New York time

I have two exit orders today for short iron condor positions nearing 50% of maximum potential profit, the exit point under my trading rules.

I’m asking $0.49 for the CGC options position, which is now trading at $0.52, and $0.19 for IYR, which is trading $0.22.

I’ll post an update if either order is filled; otherwise, I shall let them quietly expire.

By Tim Bovee, Portland, Oregon, May 15, 2019

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3:20 p.m. New York time

IYR retreated from its low point without my order being filled. The position is now trading at a $0.26 debit. I’ll keep the order alive until the close and update this post in the unlikely event that it’s filled.

10 a.m. New York time

My short iron condor position on IYR  has moved near the management point, which under my trading rules is 50% of maximum potential profit. I’ve put in an exit order for a $0.19 debit, with the bid/ask midpoint running at $0.21.

My other holdings, also short iron condors, remain within their profit zones. The are  CGC, UNH, XBI, XLB and XOP. All of my positions are scheduled for exits by May 31.

By Tim Bovee, Portland, Oregon, May 14, 2019

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3:20 p.m. New York time

Despite the Sturm und Drang of the markets as the U.S.-China tariff war heats up, my six positions remain within their profit ranges. The options positions are all short iron condors with the short calls and puts set as close to a 20 delta at entry as the grid would allow. The stock symbols corresponding to my options positions, with links to the analyses, are  CGC, IYR, UNH, XBI, XLB and XOP.

Note the weekend post on the Implied Volatility Rank metric.

By Tim Bovee, Portland, Oregon, May 13, 2019

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One of my trading rules relies on Implied Volatility Rank, or IV Rank, as a metric used in choosing trades.

The rule says that when I choose a position, it must have an IVR of 25% or greater. This ensure that I’ll be entering higher-volatility trades, upon which my short iron condor trades rely in part.

The IV Rank is a metric developed by the team at TastyTrade, the education platform created by Tom Sosnoff, on whom I’ve relied greatly in drafting my own rules in their iterations over the years. What I most useful about his approach is that he backtests his assertions and makes the results of his testing public. He runs an open system, and I like that!

The TastyTrade blog today posted an explainer of IV Rank that I recommend to all who may be unfamiliar with the metric.

By Tim Bovee, Portland, Oregon, May 12, 2019

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2:40 p.m. New York time

My six positions are 42 days away from expiration. They all remain within their profit zones and have required no action this week.  The positions are CGC, IYR, UNH, XBI, XLB and XOP.

By Tim Bovee, Portland, Oregon, May 8, 2019

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10:25 a.m. New York time

All six of my positions remain within their profit zones this morning, as they have since entry. They all expire in 44 days, on June 21, with exits expected by May 31.

The positions are short iron condors on CGC, IYR, UNH, XBI, XLB and XOP.

By Tim Bovee, Portland, Oregon, May 8, 2019

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Trading Rules are well and good, but sometimes it makes more sense to run for the exits, in as orderly a fashion as possible — without screaming; only whimpering allowed — but very, very quickly.

Such was the case with my DIS position, short iron condors expiring May 17. All went well, with the price within the profit zone, until April 12. In response to a news report, the price gapped up by nearly 10%, putting it almost $2 above the upper boundary of the profit range.

On that day, in words that now make me blush, I wrote, “the higher open was only $1.91 above the upside breakeven point, suggesting a good chance of recovery back to profitability in the 35 days left before expiration.”

The price kept slowly rising, and I took a heavy loss when I exited 17 days later. So sad. But I’m a self-correcting trader. Lessons must be learned. And that’s what I’ve been engaged in for the past few days.

On April 12 I was attempting to answer the question a trader must consider every day: “How high is high?” I got the answer wrong.

When in doubt, go to the math.

I define high by a metric derived from the options pricing: One standard deviation (1SD) of implied volatility, converted to a range of the share price adjusted for the number of days until the options expire. Nearly seven times out of 10 (68.2%), the price will close within the 1SD range at the target date. Most applications use the options expiration date as the target. I use 21 days before expiration, since that’s when I exit under my trading rules.

So it’s easy subtraction to determine how far from the profit zone the current 1SD boundaries are. I convert it into a percentage of 1SD that lies beyond the profit zone.

But 1SD distance alone is not the answer. There’s the matter of time — how many days would it take to get back to profitability.

The answer to that lies in a metric called the Rate of Change, which is the percentage change in the share price, generally over 14 days although that period is adjustable.

To calculate how many days it would take to return to profitability, calculate the distance between the current price and the boundary of the profit zone, and divide it by the daily rate of change (distance divided by the 14-day rate of change divided by the number days until exit day, that is, 21 days before expiration).

That gives me two metrics to consider in making my exit decision. For DIS, on April 12, 70% of the 1SD range was above the profit zone. I.e., the odds were definitely not in my favor. Moreover, it would have taken five days plus change to cover the distance back to profitability, at the pre-gap rate of change. Since share prices rarely move more than a few days with a retracement, that’s quite a considerable distance.

So, with those metrics at hand, I would have headed for the exit without hesitation, thereby limiting the damage.

I’m not putting this into my rules yet, but here’s my initial plan:

If more than half of the 1SD range is beyond the profit zone in the tested direction, then exit. If the number of days required for the price to return to the profit zone is greater than two, then exit. 

All of my current holdings are within the profit zone, so neither of these metrics is in play at present. But I have the tools in hand in case of need, and we’ll see how well they match the real world.

By Tim Bovee, Portland, Oregon, May 4, 2019

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