The idea for this position came from trader Nick Batista at Dough. The structure produces a higher risk/reward ratio in return for wide wings on the iron condor and also has a lower implied volatility percentile than my guidelines allow.
The position, although hedged on both sides, has a long bias.
Like Nick, I shall use the JAN series of options, which trades for the last time 50 days hence, on Jan. 20.
Implied volatility stands at 19%, which stands in the 35th percentile of its annual range. The price used for analysis was $111.73.
short the $110 puts and long the $100 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money
| JAN | Strike | OTM | Δ |
|---|---|---|---|
| Upper | 117 | 78.1% | 24 |
| Lower | 110 | 59.1% | 38 |
The risk/reward ratio is 3.2:1.
Decision for My Account
I've entered a position on GLD as described above. The stock at the time of entry was priced at $111.75.
-- Tim Bovee, Portland, Oregon, Dec. 1, 2016
References
Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.
Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading.
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Disclaimer
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.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.License
All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at www.timbovee.com.
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