JAN Condor review (all + w/ avg+9%)

placed 6 total condors for JAN expiration and have taken them all off before we even reached into JAN. closed all six for positive returns from 5% to 14% return on margin per trade. This is an average return of +9%

FEB 08 SPY Condor (-17%loss)

12/28/07
Placed a high prob condor in the SPY with 49 days till expiration:
sold -3 verticle SPY FEB08 133/129 @ .33 (mark 147.46)
sold -3 verticle SPY FEB08 160/164 @ .26
total credit @ .59 x 300 = 177
total margin @3.41 x 300 = 1023

1/04/08
btc +3 verticle SPY FEB08 160/164 @ .04 (mark 141.96)
origianlly sold for .26
total 160/164 CALL credit realized = .22

sold -3 CALL verticle 151/155 @.67
also holding the -3 PUT verticle 133/129 @.33
new postion with a 1.00 credit and 3.00 margin requirement
Will not loose more than I can make on this trade = $300
placed a GTC stop order in for the PUT side, figure this out by taking the potential credit and realized credit taken in from the trade= 1.22credit +amount willing to loose .50 = 1.72 stop order

1/18/08
btc +3 vertical PUT 133/129 @1.72 (mark 131.51)
originally sold for 0.26
net loss debit = 1.46 for PUT
placed a GTC limit order for the 151/155 CALL vertical @0.05
assuming I get filled @.05 for the remaining CALL vertical, I will take a total loss of .62 per contract or $186 or 22% loss on margin

1/22/08
btc +3 vertical CALL 151/155 @.03
originally sold @ .67
total credit = .64
.57 total loss for postion or $171 (-17% loss)

AAPL JAN trade (closed $92 loss)

12/24/07
Christmas Eve trade on AAPL
sold (1) 195/240 CALL verticle for 11.10 credit
bot (2) 200/220 CALL verticle for 6.37 debit
total debit for trade is 1.64

Plan for trade is to close for 100% approx $200 profit and not loose more than $150
Observe the screen shot to see the death trough at 200 and bad area around +15%
need to keep an eye on these areas and be ready to close/adjust trade to avoid these risky areas.
The 200 point will not start to show unfavorable for till close to JAN expiration.

1/04/08
Plan did not go according to plan and is showing weakness, even if they blow minds at MacWorld and their earnings my theta decay around 200 is painful and I don't want to rely on a 15-20% move to make money. therefore, closed the trade for a small loss of $92.

JAN/FEB SPY Calendar (-73% loss)

12/17/07

Bot (2) jan/feb 144 put calendars in the spy for 1.33 debit.

Trade was put on when my portfolio had strong negative vega and not enough profit/protection to the downside. Calendars are a good way to hedge your vega and downside risk.

Primary exit is 50% ror, I will hold as a downside hedge and will not close until over 50% loss. I will take off 1 contract if closes above 150.

1/09/08
Adjusted this trade not on the upside but on the downside believe it or not. SPY has fallen.....to the downside of the b/e and I am getting close to JAN expiry and losses will accumulate quick at this point if drop continues. Took off half of the postion so not to have too much downside risk. I am also considering that a few of my condors are getting a little stressed to the downside.
sold -1 JAN/FEB 144 PUT calendar for 1.27
originally bought for 1.33
.06 loss debit
still holding 1 contract of this trade and fortunately SPY rallied after I took this one off. If we can have a good up day tomorrow I may be able to pull of a =20% or so out of this trade.

1/18/08
No updays in sight straight down market, just gruesome.
closed up the final contract of this calendar for loss on expiration Friday.
STC JAN/FEB SPY calendar @0.42
originally bought for 1.33
net loss = 0.91 + loss from other 1 contract of .06
Total net loss on postion = 0.97 or approx $200
73% loss

IWM Butterfly (DEC) (+86%)

12/4/07
Initiated a butterfly DEC IWM
75/77/79 (2/4/2) ratio (2) contracts
debit .38

12/19/07
sold (1) of the butterflys for .63 credit
Planning on closing the remaining butterfly tomorrow if the market is up. Will hold till expiration if needed, not worried about the .38 debit of risk...
(screenshot shows remaining postion)

12/20/07
sold (1) remaining butterfly for .80 credit
.71 average of both butterfly sales, purchased for .38 = .33 profit or 86% (ror)

DIA 30 day condor JAN (+7%)

12/18/07
DIA Condor
121/124 PUT @.40
138/141 CAll @.55
(3 contracts each)
.95 total credit
205 margin per postion or 615

12/21/07
BTC 121-124 PUT @.17
BTC 138/141 CALL @.63
(3contracts)
.80 debit
.15 total credit recieved on Condor
7% return on margin.

(NOTE) This trade was accidentially closed. I meant to shave off some of the postion but accidentially sold all 3. I decided to just take off the whole postion as it was entered as a condor I didn't want a one sided trade. At least it didn't loose me money to take off accidentially early!!!!

JAN RUT condor +31% (market neutral trade recommendation)

RUT (Russell 2000 Index) Iron Condor initiated on 18 Dec 2007

Trade Summary

RUT at 742.85 (+3.82)
29 days to Jan08 expiration.

Sell RUT Jan08 810 Call
Buy RUT Jan08 820 Call
Sell RUT Jan08 680 Put
Buy RUT Jan08 670 Put
(1 contract condor)

For a net price of $2.55 Credit

Trade Analysis

Be patient with this trade but try to have it filled before market closes today. We've been queuing for this trade for the whole morning and finally managed to get it filled at $2.40. Its current mid-price is $2.45. This price will be unattainable in a few days' time. With only 29 days left to expiration, this iron condor is priced very nicely. This is the second RUT iron condor that we put up for Jan08. I gave up trying the SPX after 2 days and personally I prefer the RUT better.

Looking at the P&L chart below, we can see that our breakeven points are at 812.4 on the upside and 677.6 on the downside. This position has a probability of about 71.56% to be successful. This is a higher probability than the 1 standard deviation that we always look for. This iron condor has a profitable range of about 134 RUT points. At current price, RUT is currently about 67 points away from our short call and about 62 points away from our short put.
The technical aspect of the RUT is somewhat bearish. From what we can see from the 6-month daily chart below, there is only one viable support at the 736 level.This support was tested twice in the past 6 months. Once on 16 Aug, when RUT touched 736 and bounced off. The second time was on 26 Nov when RUT closed at 735 and then bounced off the next day. It looks certain that the 736 level is going to be tested again very soon. Will RUT hit 735 and then bounce off again like it had done for the past 2 times? Or will RUT break the support and go down lower? Today's close will be a good gauge of what is to come.
This iron condor has a risk/reward ratio (R3) of about 3.17, which makes it a 'high R3' iron condor. What this means is we have to be watchful over this position and be prepared to make adjustments when the RUT is trading at about 3% from our short options. In this case, we shall watch out when RUT is trading at 30 points away from our short options. We have to be prepared to make adjustments or take losses when RUT is trading at more than 780 or less than 710.

Total margin required: $745

12/24
BTC the 680/670 PUT verticle for .13
originally sold for 1.45
total realized credit: 1.32

810/820 CALL verticle: 1.10 credit
currently trading around 3.90-4 dollars
1.32 + 1.10 = 2.42 currently loosing approx. 1.50 on this condor.
placed a stop order in a 4.55 (will limit my total loss to approx $200 for the codor)

1/04/08
btc the 810/820 CALL verticle for .10
originally sold for 1.10
total realized credit: 1.00
condor total realized credit = 2.32
7.45 margin 2.32 credit = 31% return

X1 qqqq Trade JAN (closed +1.50 credits)

12/6 STO (2) JAN 46/49 PUT credit spread @.46
12/17 BTC (1) JAN 46/49 PUT credit spread @.67
equals a .21 debit

STO (1) JAN 52/56 CALL credit spread @.84
STO (1) JAN 53/56 CALL credit spread @.39
STO (1) JAN 54/58 CALL credit spread @.41

Total credit potential (with adjustment loss) = 1.89
Screen shot analysis is graph of JAN inventories only (excluding the main postion of long 100 qqqq stock and long JAN10 60 PUT)

I was able to capture 1.51 of the 2.20 potential credit for the DEC inventories. 2.57 is the extrinsic value/risk for the core X1 trade (long stock with LEAP long put) 2.57 - 1.51 = 1.06 extrinsic value risk remaining. JAN inventories carry potential of 2.36 credit. My goal is to eliminate the extrinsic value this month. Then trade very conservative thereafter, therefore holding a risk free long position in the QQQQ's.

12/21
We got a Santa Rally in the markets today and I am postioned to experience some pain around the 53 strike. I will take off my 52/56 verticle if Q's close above 53. This should be an approx. $100 loss point. My plan is to not loose more than I can take in for any given month. Took in 1.51 credit last month.

12/26/07
BTC (1) JAN 49/46 PUT verticle for .13
originally sold for .46
total credit .33
debit from (1) other 49/46 PUT verticle closed 12/17 for .21 debit
equals a credit of .12 for JAN so far.NOW holding only CALL credit spreads, negative deltas...still mentally keeping 53 as an adjustment point.

1/03/08
BOT +1 QQQQ JAN 08 54 CALL @.08 to close
did not sell the long call portion of the verticle as it is worthless, will keep on for a lottery ticket play
initial credit for 54/58 verticle was .41
total credit closed 54/58 CALL verticle for: .33
still holding:
(1) JAN 52/56 CALL credit spread @.84
(1) JAN 53/56 CALL credit spread @.39

Extrinsic Value to cover for married put postion is 2.57
DEC inventories took in a credit of 1.51
leaving .94 of extrinsic value/risk left to cover.
So far with JAN inventories have realized a .45 credit leaving only .49 left to gain this month for a risk free married put postion in the QQQQ's.

1/04/08
btc (1) 53 CALL @.11
credit realized for 53/56 CALL is .28
still holding:
(1) JAN 52/56 CALL @.41

1/07/08
btc (1) 52 CALL @.07
credit realized for 52/56 CALL is .77

TOTAL JAN CREDITS = 1.50
Potential credits for JAN were 2.56

TOTAL credit from DEC & JAN credits is 3.00 therefore relieving all extrinsic value and risk from the position. Next goal is to pay down the cost of the JAN10 long put total debit is 11.81 (subtract 3.00 credits = 8.81 left)
FEB inventories were placed today, will include on a new, seperate post dated 1/07/08

RUT jan (40 day) Condor (+5%)

12/10/07
sold -2 verticle RUT Jan 08 880/890 CAll @.54 (mark 791.76)
sold -2 verticle RUT Jan 08 700/690 PUT @.90
adjustment points 740 & 840 (approx 20 delta strikes)
both of the shorts were placed at approx 10 deltas.

12/14/07
btc (2) veritical RUT JAN 08 880/890 CALL @.08 (mark 753.72)
original credit: .54
Total credit for CALL side: .46

12/18/07
btc (1) verticle RUT Jan 08 700/690 PUT @2.05 (mark 744.86)
original credit: .90
debit for PUT 1.15

Still holding 1 contract of 700/690 PUT

Placed a stop order in for this PUT verticle at 2.65, don't want to loose more than $200 on this condor.

12/24/07
btc the remaining put verticle 700/690 PUT for .20
original credit: .90
profit .70

Condor P/L
.46 (2)credit
1.15 (1)debit
.70 (1 credit
.47 total credit from trade
8.56 margin / .47 credit = 5% rom

5-6k live account guidelines

5-6 months of trading at this level
You should trade 4-6 trades 1-3 contracts per month
use indexs and some stocks
commisions 1-1.50 per contract
make sure you have some up/down markets during this period to prove you are ready to increase your size.
Always remember to SLOW DOWN! take your time...
Stay small, work on the craft, after 8-9 months if your still excited and in the game, NOW you are something and have the potential to make a living at this.

Calendars (Dan Sheridan notes)

adjust guerilla calendars (ex. Jan/Feb calendar) by taking off the postion when it hits the BE point if 20+ days till expiry. If less than 20 days monitor closely and be ready to close it. Refer to earlier post in Nov defining the parameters of a guerilla calendar.

With campaign calendars, (ex. Jan/Apr calendar, extra months btwn the long and the short) you can adjust to a double calendar if you feel the market is still in a stable mode or a diagonal spread if you feel like taking a directional risk.

Calendars are volatility plays, you want the vols to increase after you place it, if price runs up on you to your upside BE point putting on a double calendar will be a cheap adjustment as vols come down as price rallies.

X1 qqqq Trade (DEC +1.51 credit)

12/5/07
Took off the Put Credit Spreads,
DEC Inventory:
47 strike (1) short put 0.53 Credit (initiated 11-20)
46 strike (1) short put 0.48 Credit (initiated 11-27)
43 strike (2) long puts 0.15 debit (initiated 11-27)

12-5 take off inventory for 0.57 credit or $57 dollar profit.
BTC (1)47 for .11
BTC (1)46 for .07
STC (2)43 for .02

Risk/Return was not attractive at this point, so I puked the positions, locking in the profits.

Still holding the Call credit spread inventory: watching closely to see if price will close above 52 (my short call strike price and adjustment point)

12/6/07
QQQQ have rallied again today, triggering my adjustment point, what a kick in the gut!
Added the following inventory for JAN08
sold -2 verticle JAN08 49/46 put @.46 credit (mark 52.12)
sold -1 verticle JAN08 55/58 call @.54 credit (mark 52.15)

keeping the 52/55 2:1 ratio call spread on until it hits my break even point of 53.50 then will take off the risk.
I am waiting till after Dec. 11 (fed intrest rate decision) to make further additions to my JAN income spreads.

12/14/07
QQQQ have pulled back, deflating premium out of my DEC 52 short calls.
Was holding 52/55 2:1 ratio call spread.
Shed the extra short 52 contract for debit of .40 (mark 51.31)
originally sold for .93
yeilding a .53 total credit
(1.10 is the running total credit for the DEC inventories)
Still holding the DEC 52/55 Call spread at .57 credit
current quote: .24
Plan is to close on Monday for less than .20
12/14/07
added a JAN(1) 54/56 Call credit spread for .38 credit

12/17/07
Now closed out of all DEC inventories: (according to plan)
BTC DEC 52/55 Call @.16
initially sold @.57
total credit .41

TOTAL DEC CREDITS = 1.51

X1 Trade (concept from Jeff Mcalister

I am new to this group today, and have a few thoughts on the X1 as
well as a paper trade for the strategy:
A few recomendations to better soften the edges of this trade:
1. trade an index ETF like QQQQ, IWM, DIA, SPY
They don't have the extreme volatility or gaps like some individual
stocks, b/c they are diversified vehicles
They have extremely rich liquidity trading 50-200+ million shares a
day = (tight bid/ask)
They trade in $1 strikes
No earnings to worry about (enables you to short options in every
month)
Decent extrinsic values OTM to sell

2. instead of the naked strangle or "envelope" place twice as many
contracts of an iron condor to avoid the naked risk. placing twice
as many contracts of Iron Condors as the underlying should bring in
close to the same credit as the short strangle without the naked risk.

*Another positive thing to note, appears when you disect the trade:
Long stock with Long put, synthetically you are
holding a Long call or in this instance a LEAP long
call. This position or synthetic position carries
high positive volatility/vega risk, (vega decreases LEAP value
DECREASES... )
When you add a short strangle or iron condor to the
trade you will be carrying a short vega risk. When you
combine the two positions you have a more diversified
vega risk; slightly positive vega overall, and as time
passes the positive vega of the LEAP will slowly diminish
bringing the vega risk closer to neutral.

Trade example with adjustment:
I placed a paper trade on the QQQQ with a slightly diferent
application of X1 trade:
entered trade 11/20/07
buy 100 shares QQQQ at: 50.55 debit
buy 1 Jan10 Leap 60 put at: 11.87 debit (2.57 extrinsic value/risk of married put postion)
sold 1 Dec 47 put for: 0.53 credit
sold 1 Dec 52 call for: 0.82 credit
sold 1 Dec 52/55 bear call for: 0.67 credit
basic Jeff Mcalister application with one extra bear call thrown in.
(at this point carrying naked risk up/down)

11/27 adjusted trade to protect naked downside risk:
sold 1 Dec 46 put for 0.48 credit
buy 2 Dec 43 puts for 0.15 debit (extra contract to cover my short 47
put; leaving me with a 2 contract bull put with 46&47 as the shorts
and 43 as the long.)
(after adjustment carrying naked risk to the upside but still very
tolerable, as of today, if QQQQ rally 10% and break all time highs,
still only down $250...
Also note that if my Dec options/shorts expire worthless I will have
brought in 2.20 credit. This ellimantes all but 0.37 extrinsic value
of the LEAP long put. Leaving me with virtually a risk free position
on the QQQQ after one month.

Lower Prob Condor Plan

30 days till expiration put on a iron condor with a 60% prob of success. Then plan your adjustments at approx 12% loss on margin, you will take off 40% of the loosing side. For example on a $4 credit condor with $6 margin requirment and a 5 lot trade you will take off 40% (2 contracts) when the trade moves .72 against you moved from 4credit to 4.72 credit, then if price moves to the short strike take off another 40% and if it moves $5 ITM past your short strike take off the rest.
Profits, take off when your up 10-15% within 7-18 days.

When picking an index etf to place trades, observe how the indexes are fairing for the year. Look for skews between the indexs, look at which ones are trending above or below and watch out for those to come to parity with the rest.

High Prob condor expirament

Last four entries are a high prob longer range iron condor. 80% plus probabilities going 45-55 days out. picking short strikes at approx. 7-10 deltas and setting adjustments at the 20 delta point or when loss equates to 1 or 1.5 of cash flow. Plan to take half of the position off when points are triggered. If you take off all of the loosing position, wait 24 hours then place twice the number of contracts 1 more standard deviation from price and challenge the market to do it again!!
Profit plan: looking to take about 50-70% of total cash flow on these trades. Get out before expiration week.

I will post when I make adjustments or take profits.

RUT JAN08 (50day) Condor (+14%)

12/3/07
Put placed at a 7 delta or 640 price (640/630 PUT @.62 credit)
adjust at 20 delta or 700 price
call placed at an 11 delta 860 price (860/870 CALL @.97 credit)
adjust at 20 delta or 830 price
84% probability trade
2 contract condor
total credit 1.59

12/11/07
bot +2 verticle RUT Jan08 640/630 PUT @.20 (mark 786.83)
initial sell of this 640/630 PUT verticle at .62
total credit from PUT .42

Still holding the Jan08 860/870 CALL @.97

12/17/07
bot +2 vertical RUT JAN 08 860/870 CALL @.20 (mark 746.52)
initial sell @.97
Total credit from CALL .77

Condor total credit 1.19 on 8.41 initial risk (14% ROR)
$238 for 2 contract trade!

IWM jan Condor placed 12/3 (+9%)

12/3/07
Initiated an IWM condor
65/60 PUT @.34 credit
85/90 CALL @ .33 credit
2 contracts each
20 delta strikes: 69 and 83
placed short deltas at 10 for puts and 13 for calls
86% prob

12/18/07
btc (2) 85 short calls @.07 the 90 long call worthless at this point, no reason to sell and pay commisions.
originally sold verticle @.33 credit
Total credit for CALL .26 credit
btc (1) 65/60 PUT verticle @.23
orinially sold verticle @.34
Total credit for PUT .11

Still holding (1) contract of the 65/60 PUT verticle
If we rally again tomorrow will try to close it for .10
Will not let this condor turn into a looser will manage this remaining PUT verticle closely to not let the risk ruin my hard earned gains.

12/20/07 (closed)
my limit order was filled for the (1) 65/60 PUT verticle @.10 debit
originally sold for .34 credit
total credit .24

Total credit for (2) CALL .26
Total credit for (2) PUT .17 (average of .24 and .11)
Condor credit .43 for 2 contracts = $86
credit .43 / margin 4.33= 9% return on margin

SPY JAN08 Condor (+14%)

12/3/07
Placed condor at 134 (15 delta) and 160 (11 delta)
adjust at 20 delta strikes to adjust at: 157 and 138
82% prob
134/129 PUT for .55 (2 contracts)
160/165 CALL for .35 (2 contracts)

12/11/07
Filled on my limit order for the put side
134/129 PUT @.14 (mark 151.06)
initially sold for .55
total credit from PUT side .41

12/14/07
Filled on my limit order for the Call side
160/165 CALL @.15
initially sold for .35
total credi from the CALL side .20

*Condor closed for .61 credit on 4.10 of risk = 14% ROR in 11 days
for two contracts total return is $122 minus comissions $24 (1.50 per contract)
$98 take home

DIA Jan 08 Condor (+7%)

12/3/07
placed short options at approx. 7 deltas 117 and 144, per dan sheriden's guidlines. Then observed the 20 delta strikes at: 125 puts and 141 on the calls. At these points will need to take off half of the trade.
87.5% prob

12/10/07
Had placed a stop limit GTC order in on DIA and was filled on the PUT 117/113 side this morninig for .08 debit
Initialy sold it for .24 credit
total credit from PUT side .16

Still holding the CALL side 144/148 for .26 credit
Have a Stop .60 Limit .15 GTC order in.
current quote at .49
down .23
credit from put side .16
overall position at negative .7

12/11/07
bot +2 Call verticle 144/148 @.15 (mark 136.02)
initially sold it for .26
total credit from CALL side .11

total credit from condor .27 on 3.73 of risk = 7% ROR (8 days in the trade)

Abu Dhabi

11/27 the markets are getting swatted by the credit issues, bank wright downs and subprime sludge have a hold on the markets making for volatile trading and much uncertainty.
This morning we get news out of no where, Abu Dhabi, think Garfield! They are injecting a few billion into Citi bank, a troubled super banker. This established a little faith in US markets and investments and brought the bulls into the game.

The Point:
When you feel like you figured out the markets and want to pick a direction, something from Abu Dhabi may come out of no where and knock you upside the head.

Application:
Keep yourself hedged to the upside and downside, don't use naked options, manage your risk accordingly, plan your trade, trade your plan. period.

condor check list

1. Has the short delta hit around 22-25 or put 20-22? Take off bad spread. Wait 24 hours then roll both spreads up on upside or down on downside
2. Never add new short calls over 10 deltas on calls or puts!
3. Have credit spreads shrunk to $0.15 - .20? Take off.
4. Have profits hit 50-60% of cash flow? If yes, "tighten noose" - that is, change your adjustment points from breakeven to proit-protect, ignore delta
5. Has loss hit one or one and a half times cash flow? That is the most you should let the condor lose. Take it off, come back to play another day.

Heavy Income Business (Condors)

Must have a plan when you trade!
Keep the probabilities on your side,
therefore run your business heavy on income trades.
Debit, or speculative naked options have the probabilities stacked against you and margins can kill you!
Back to your plan:
In times of peace make your adjustment plan, so when war is upon you, you will execute as planned. (period)
With Iron Condors, need to be consistent with your execution.
ex. go 50-55 days out will be able to create a spread that is 90% probability low yield, low risk mngmnt.
or ex. every 30-40 days with 70-80% probability, better yield but more risk mngmnt.
RISK MANAGEMENT RISK MANAGEMENT RISK MANAGEMENT!!!!!!!
With condors if you loose one of these you will be hurt bad!
This is a craft, you need to work at the risk management!
When price goes against you, step 1 buy in the bad side, then wait 24 hours, to let emotions settle down. Then step 2 go another standard deviation out and sell 50% more contracts there. Then you challenge the market to do it again. If it does throw up the white flag.
Will close b/f expiry b/c risk/reward is not attractive the closer to expiration you go. You must have a solid risk management to control your losses.
Look to diversify your price and volatility by having 5-7 income trades in your portfolio using calendars, condors, double diagonals.
Remeber to look at the skews of the ATM calls in front month and next month options. If there is a positive skew the market is pricing some event or move in, investigate.
5 point strikes minimum .35 credit each side
10 point stikes minimum .60 credit each side
You need to blend your trading with you job, put in automatic stops, contingency order if underlying hits your adjustment point.

X1 Trade by Jeff McAlister (STS)

Buy long stock add a long put deep ITM with furthest LEAP series available. LP to have less than 30% extrinsic (time) premium. Then add a short strangle front month to pay down the LP. To establish the risk of long stock with long put you must take the time premium minus the total credit from the short strangle. You will incur risk with the short strangle but only on the down side with the naked short put, the short call can be covered by the stock. Look to place shorts at key support & resistance levels.

Adjusting: roll the entire strangle (envelope) when adjusting to lock in profits and minimize losses.
In case of a gap up or down will need to work at mitigating the losses over time, should still be able to come out ahead by the end of the LEAP LP.
Can also add verticles to the trade to maximize current trend, or replace the short strangle with a iron condor etc.
Doing this trade with an ETF makes sense, since the risk to zero is irrelavent. Also as a diversified product, gaps up/down are less common and not so severe when they happen. You may also short strangles/verticles against underlying each and every month, not worrying about earnings or announcements with an individual stock.
The picture above is a snapshot of the analyzer for a QQQQ envelope trade with additional bear call at the 52 strike.

Income Strategies Gorilla Calendars (Dan Sheridan)

Favored Income Strategies:
Calendars
Double Calendars
Condors
Double Diagonals
Butterflies

Guidelines:
Vols less than 30
Predictable industry (no bio tech/drugs)
Look at the price chart (see if moved over 10% last month and why)
Don't place in earnings month or fixed announcements

Gorilla Calendars:
What are they: sell one month and buy next month out
Income spread b/c looking for near term short option to decay faster than back month's long.
How to find: IV is btwn 14-28. Looking to pay as little as possible
Most desired time to put on: 25-35 days from expiration
Execution is crucial! don't accept more than .05 off the mid, be patient for fills.
How much to pay: .10-.50, which is great. But nothing wrong with paying up to .90
Remember the Gorilla Calendar idea is to set up a one-month calendar take a small profit and run for the hills.
Time Premium: you want time premium of short option more than 50% of long option
Minimum to receive from short option: at least 0.30, which will usually be all time premium. Just remember the time premiums short should be at least 50% of time premium of long. That means if you sell an option for .30 you won't pay more than .60 cents.
When to take off profits: up 40% vs what you paid or debit. If you pay .50 take off for .70 typically in 2-4 weeks.
IV to be in the mid to low range in last one to one/half years. If at the high end make sure to stress test the calendar in the analyzer
Industry: no oils, bio techs, or other vol industries
Price: when trying to detect too much speed in the underlying vehicle:
?determine if the underlying moved more than 5% last week in one direction?
?last month was there more than a 10% move in one direction?
?in the last three month, was there more than a 15% move in one direction?
?in the last nine month, was there more than a 25-30% move in one direction?
**If you answered yes to any of these four questions consider waiting...

Look out for earnings months, no trade.
Skews: There should be no positive skew over four to five points b/f you put on a position. If one develops after putting on the position take it off.

Risk Management:
If you pay less than .40 for the gorilla calendar, leave it alone till expiration day unless you take off for 40% profit or more any time b/f that. On expiration day, take off the complete spread on both sides. Be careful if short option is ITM and time premium hits .05; you may get exercised on the short call. If you pay greater than .40 for the gorilla calendar take off when time premium of short options hits .05 unless you take off for 40% or more any time b/f that.

LONG TERM Calendars (Portfolio Plan cont.)

Long Term part of the Portfolio
Long Term Calendar:
you can use a well diversified index or ETF with vols below 25. This stuff will compete with the long term retirement portfolio. Mildly bullish play
Example: MNX calendar
every 30 days put on a OTM calendar (3% OTM) (mildly bullish calendar 3% OTM every 30days) Don't trade anything w/out a plan, prepare for a battle in a time of peace. Plan out your adjustment prices, when to take out profits (up 10%) when loosing when down 5% take off half when down 10% take it all off. This is a craft, work at it.

Summary:
When to put on: 30 days to expiration
What:Well diversified indexs or ETFs
Plan: down 5% take off half down 10% take off the rest up 10% take off all.

Porfolio Plan by Dan Sheridan

Look at the Whole Portfolio , do not focus on individual trades get a broad outlook. Divide your portfolio into Long Term, Income Trades, and Speculative (see picture graph).
Its not how much you make its your YIELD! What % did you yield on invested capital.
Long Term positions have Long bullish positions to take advantage of the overall bullish movement of the markets

Income trades take advantage of the grinding ranging behaviour of the markets. This is similar to insurance companies that take in income when nothing is happening.

Earnings plays: look at the last earnings and see what movement occured: http://optionslam.com/ (good website to track historical earnings movement) Also consider the volatilities!
Can play earnings with a double calendar: look at the straddle and the % move needed to break even, or the movement the street is pricing in. Then set your calendar break evens to take advantage of these points. The skew in volatilies should work in your favor as long as the stock doesn't explode up/down. Now, instead of having a straddle where you need the stock to move big to make money, you have a nice realistic range where you make money. Good example is from Goog earnings play (see pictures above) This trade would go into the speculative part of your portfolio.

Calendars & Condor income spreads: these last few months have seen volatilities greater than what we have seen in over 15 years! This is a code red for income traders, extreme vols and difficult for credit spreads, calendars etc.! If you have negative vega positions in your portfolio (meaning if vols go up you get hurt) So, for individual postions, don't put on a neg vega trade when vols are fluctuating huge, but if you have too much positive vega it makes sense to add a neg. vega trade to balance the portfolio.
To place a calendar trade first look at the IV and make sure the vols are tame or average w/out large skews btwn the front and back month option. If there is a large skew the market is pricing a big move in one of the month.

Dan Sheriden (TOS) Condors

Need to divide your portfolio into catagories:
~short term 1or2 month income
~long term
~spec trades

throw in 4 things into monthly (1or2 month) theta income trade recipe:
*Credit spreads
*Calendar
*Double Diaganol
*Condor
Combining credit spreads with calendars, diversifies the strategies and the greeks. For example the positive vega calendar and negative vega verticle. This maximizes theta and neutralizes vega impact. Diversify price and volatility risk.

2 types of condors: High Probability (80%+) vs. Low Probability condor
Look out for volatility.
$$$High Prob condor(RUT example)
Place these trades 35-50 days (4-7 weeks) b/f expiration
Selling high volatility is not always the correct answer. It is only correct when you think volatility is going down. HIgh volatility is not a license to sell. The nature of volatility: 17-24 is a mid vol level, great trading vol level.
30,35-40 vol range is scary, dangerous. You will get compensated for selling high vols but it is risky.
(note) Call spreads trade 40% richer than equal distant put spreads, so it is optimal to place a condor into a rally opposed to a sell off. When a rally ensues you may want to consider placing a 2 strike wide call spread by 1 strike wide put spread, this will take in considerably more premium.

$Risk Management / Dont ever trade without a plan. Look at the maximum risk $840 and return $160 (80% probability condor). If you loose once in a year you will be a big loser with a max risk at $840. Put a plan in place when entering any trade, just like running a business. Don't loose more than 1.5 - 2x your max reward, on this trade get out of this trade at approx. $300 loss.
Also how will you handle profits, when will you take profits???
tighten the noose when you are up approx 60-70% take some off or get out of the trade, book profits.
*Adusting this trade: if you sell this at approx 7/10 delta, when the delta of the short put is at -20 you are starting to feel some pain depending on the volatility, take off some of the puts and roll down. When placing this trade look and see what strikes put/call have .20 delta, then set your plan to adjust the trade when that point is hit. Can also midigate risk by overlaying a put/call debit spread to protect the side you are concerned about. For example on the put side 50/47 you may want to overlay a 51/48 to reduce risk to the down side. This would be on a ratio basis, you would have 5 contracts of the condor and 1or2 of the debit spread.
$$$Low Prob Condor (60-63% prob risk reward 1:1.5 or 2)
will trade this differently, put it on with 30 days to expiry get off in 14-17 days, making 10-15% reward. Now instead of selling a 7 delta strikes (high prob), sell 20 delta strike options, this will equate to a 60% prob of success) This is a different animal, you are only in this trade for 7-17 days, once you have 10%+ you start tightening the noose, taking profits. Max loss 15-16%. You are taking in more theta, faster, in this trade vs. the high prob condor discussed here.
Adjustment: (specific criteria with 5 contracts on) Max risk 15% don't loose more than this. Taking profits at 12-15% of margin, protect profits.
with 5 contracts on, when down 11-12% of the margin/risk, take off 40% or 2 of the loosing side. When it gets to the short strike take off another 40% or another 2, then the other 1 when your down more. this will protect you when the market runs then backs off. were trying to stay in the game, don't want to get shaken out of the game. At the end of the year, look at your 12 trades over a year, how much did you make in a good month vs how much you lost in a bad month. DONT LET YOUR BAD MONTH OUTWEIGH YOUR BEST MONTH.
****notes When you look at how the indices have performed this year, consider the inversions btwn the indices and skew your postions. For example: the nasdaq was trading well above the other indices espicially the Russell. so to skew condors accordingly makes sense. All Indices will gravitate towards parity, one still may outperform but the gravity will have an impact over the term.
***find a strategy and approach that works for you, observe the criteria used and method you employed to achieve sucess, then master it. Don't get yourself going in a million directions, focus on the strategy and underlying that works for you.
**Look at this business like insurance companies, you're in for the long run.
*January expiration month is generally the busiest month, a ton of open interest (Jan LEAPs still open, back from holidays) January is a great trading month b/c of liquidity.

"Early" New Years Trading Resolution Plan

http://www.optionpundit.net/market-psychology/trading-plan-resolution

Option Pundit is my hero, I wish one day to achieve his market prowess and deliver his monthly returns. The above link is a meaty new years resolution to glean from.

*Notes from TOS chat for 2007 New Years Trading Resolutions*
On an overall risk management outlook, do not risk more than 25% of your total capital in overall maximum risk. For example if every trade position you have on goes completly against you and you must assume max risk, do not let this amount be greater than 25%. You don't want to get blown out of the game.

JMD's Quest

Investing my time and passions into an education has taken me on a journey to find a consistent trading plan. Finance and investing offer a world of information and complexity beyond any one person's ability to digest. My goal is to distill this information into a trading vehicle that will navigate through the stresses and volatility of the markets.
I will glean from my experiences in specific trades and share all their little delicacies. This will be my exposition.

Sell Crap & Manage Risk

Sell Crap and Manage Risk!

3 Criteria to follow when selling options (crap):

1. Massive liquidity / Tight markets / High open interest
Be the smallest fish in the biggest pond.
2. Sell verticle/time spreads 4-10 weeks before expiration. The closer to expiration you get, your theta decays faster but gama will outweigh. Gama will explode delta all over you! If you let your options expire worthless you are stupid.
3. Place verticles with 50-70% probability of success, if experienced up to 85%. Figure your probability of success by dividing the risk by the spread. For example an 80/75 put verticle with 1.80 credit and 3.20 risk would have a 64% probability of success (3.20/5.00)

*note
spread your inventory out over several strikes, don't over allocate yourself.

These notes were taken from a Think or Swim educational conference in Irvine by a professional market maker / trader.

Intro

Contrary to popular belief, Options’ trading is not easy. As Dan Sheriden says, it’s a craft and it takes time. One needs to learn the craft, readjust and master it before you start sailing in the sea.