[Options] Fading Index Volatility

Sean McLaughlin
September 22, 2021

With volatility rising this week, I've been on the hunt for opportunities to "safely" sell some premium.

While there is no such thing as a sure bet in the markets, selling elevated premium in rangebound securities is one of the closest things we will find to that idea.

I was chatting with my partner Steve Strazza this morning and when I told him what I was looking for, he immediately responded: "Oh -- you want $IWM. That is the very definition of sideways action."

Sure enough, he's right. And upon closer inspection of the options chains, there is some good premium offered for sale if we're willing to go a little further out in time.

Check this beauty of a range in $IWM:

Usually I prefer to sell premium less than 50 days to expiration, but November expiration is currently 58 days away. That'll do.

Here's the Play:

I like an $IWM November 200/205/235/240 Iron Condor for an approximately $1.80 credit. This means I'll be short the 205 puts and 235 calls, while protected by the 200 puts and the 240 calls. This is a defined risk trade where the most I can lose is the maximum possible value of the spread (distance between short and long strikes -- $5.00) minus the credit we receive at initiation ($1.80) which equals $3.20.

And the only way we lose the full amount is if we witness a decisive break of the range $IWM has been in since the beginning of the year. Could it happen? Certainly! But our bet is that this range will continue to hold a little while longer -- at least long enough for us to capture our profit target and move on.

My risk management on this one is going to be pretty simple. If $IWM close beyond our long strikes (200 on the downside, 240 on the upside), then I'll close the entire spread down to limit any further losses.

In the meantime, I'll leave a resting order to cover this spread for a win for about a 90 cents debit. This would represent capturing 50% of the original premium collected. This is always my target when trading Iron Condors.

If you have any questions on this trade, please send them here.

ASO subscribers who missed last week’s live Jam Session can catch it here. Catch our next one this Friday at 2pm ET here.

~ @chicagosean

P.S. We do trades like this regularly. If you'd like to leverage Best-in-Class technical analysis into smarter directional options trades, try out All Star Options Risk Free!

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