By Derek Moore
With volatility surging after yesterday’s selloff and today’s collapse in the rebound, ZEGA’s traders were able to find a short-put spread trade to join the party. Prior to this morning, we only had a short call spread in our primary HiPOS conservative strategy. For those in the strategy over the last year, yes this means we now have a short Iron Condor position.
The name Iron Condor seems really fancy, but it simply refers to having both a short call spread and a short-put spread on at the same time. We have sold volatility both above and below the market. In our typical graph above, we have now added the short-put strike of 2250, which at the time of entry was around 25% below the market.
Given the new total position, what you are rooting for still is time decay but you would like the market to just kind of hang around in safely in between the two short strike prices above and below the market. Speaking of time decay, the short-put spread added are at the same June 26th expiration date.
This means that after the close today, there are 14 calendar days and only 10 trading days to go until expiration. The reason our traders were able to find this entry was a result of the flex higher in volatility. Higher volatility allows us to put on positions further away from the market with less time to expiration all while meeting the stringent risk reward rules for entry.
Now for the Particulars: (Total Position Including New Short Put Spread)
- Index: S&P 500 Index
- Position type: Short Vertical Call Spread Iron Condor
- Short call strike: 3400
- Long call strike: 3450
- Short put strike: 2250
- Long put strike: 2200
- Risk (prob. ITM): <1% at time of entry
- Total Targeted total return: ~ 1.90%
- Call Spread Distance OTM: ~ 9.5% at time of entry
- Put Spread Distance OTM: ~ 25% at time of entry
- Expiration: June 26th or 10 trading days to expiration