Weekly Iron Condor Trade #1 (Part 1)

On June 3, 2015, I did my first weekly iron condor (IC) trade. The idea is to sell the 4-legged beast with 8-10 days to expiration around a 0.05 delta. I want to collect $0.40 per vertical spread.

My primary exit is to let the trade expire.

The only adjustment on this position is to close the distressed 15-point vertical if its premium reaches two times the credit generated by the whole trade. If I collect $0.40 per vertical spread then I will close either side if it reaches $1.60.

In theory, this is a high probability trade. If I sell a 0.07 (aggressive approximation) delta then the probability of touching is 28%. For calculation purposes, I will consider “touching” to be a loss but in reality I think the chance of losing is greater since I don’t believe touching is required to hit max loss. To account for that, I will consider a loss to be two times the average win.

Based on these assumptions, expectancy would be:

(0.80 * 0.72) + (-1.60 * 0.28) = 0.128

Since there is overlap of two trades on Wednesday through Friday, the weekly ROI is 0.417% on 30 points gross margin. This is 22.19% annualized.

If I were always able to close the losing vertical spread for 2x then my theoretical loss on the trade would only be $0.80 instead of $1.60. This would double the projected annualized return. I am taking a wait-and-see approach until I see how often it actually loses.

I will set a contingent limit order to close when a vertical spread reaches $1.60.

Given this trading plan, on June 3, 2015, I placed a JunWk2 2180/2165/2035/2020 IC for $0.85 credit.

At 9:35 on June 5, my contingent order to close the put spread fired. I called the trade desk and contested this trade because from what I could see, the spread was nowhere near the trigger price. I requested the time and sales report to verify. They could not get me this by EOD (customer service rep said the quotes provider “blew him off” despite repeated requests to get the information) so he told me to resell the spread. I did this after market close and the brokerage reimbursed me the difference.

Weekly IC trade #1 lived on…