[REITs in Wikipedia]VNQ
The position I exited was structured as a strangle, with no built-in limit on loss. This time, I'll build an iron condor, which as a defined maximum loss.
I shall use the OCT monthly series of options, which trades for the last time 45 days hence, on Oct. 16.
Click on chart to enlarge.
|VNQ at 12:25 p.m. New York time, one year daily bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
And so I turn to the options grid, and find that there is insufficient open interest to support a trade. For October, one call strike, $77, has four-digit open interest, and the rest are in double digits or zilch. All of the put strikes are double digits or zero.
Having come this far, I go ahead and work out a position, but under my rules the number of contracts in play is too small to meet my needs.
The skewing of the iron condor to the upside is an artifact of the options grid. From $65 down it moves to $5 intervals between strikes which, had I one lower to a $65 short put, would have required that wing to be $5 wide rather than the $2 that I preferred.
short the $67 puts and long the $65 puts,
sold for a credit and expiring Sept. 19.
Probability of expiring out-of-the-money
The premium is $0.60, which is 30% of the width of the position’s wings.The stock at the time of analysis was priced at $72.61.
The risk/reward ratio is 2.3:1.
The zone of profit in the proposed trade covers a $5 move either way, or 3.2 times the average true range.
Decision for My Account
I won't be opening a position in VNQ for the reasons stated above.
-- Tim Bovee, Portland, Oregon, Sept. 1, 2015
My volatility trading rules can be read here.
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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.
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