may 2006 spx iron condor

On Friday I tried to get an quick fill for an SPX condor and didn’t get it oh well. I ran into a snag trying to get Margin Relief on my April OEX position – I was informed by Scott over at thinkorswim that the OEX is a PM settled option and they couldn’t give me relief! After a bit of discussion, he let me force an order through, but it didn’t get filled. I’ll admit that I was a bit frustrated, but I appreciate the fact that he was up front and willing to help me out, and that my broker is looking out for me! Scott traded the OEX pits for about 18 years, so needless to say, I didn’t argue with him

It’s funny to me that this issue hasn’t come up before as I usually ask for relief on expiration Friday. Oh well, it was a good education and I followed it up by researching all of the settlements for each index I trade again! AM Settlements are for the RUT and SPX, PM Settlement for the OEX. Typically, if a position is in trouble, I’ll exit before the settlement anyway so this hasn’t been an issue in the past. However, it’s always good to have more information!

So… after getting a quick education on Friday, I’m trying again. As of 10AM PST, one leg of the condor is up and running and I’ve got an order out for the other leg…

May SPX Iron Condor

~~May 2006 SPX 1250/1245 Bull Put Spread~~
~~Sell 1250 Put & Buy 1245 Put~~
Order placed for $0.30 Credit
May 2006 SPX 1255/1250 Bull Put Spread
Sell 1255 Put & Buy 1250 Put
Filled for $0.35 Credit

May 2006 SPX 1350/1355 Bear Call Spread
Sell 1350 Call & Buy 1355 Call
Filled for $0.30 Credit

Resulting Final Trade will be a May 2006 1250/1255 1350/1355 Iron Condor
Total Credit of ~~$0.60 (Hopefully)~~ $0.65

~~Potential~~ ROI of about ~~12%~~ 13%

Risk is 9.17% above 1350 and 3.65% below 1250. Looks like a pretty safe trade. As with my other May RUT trade, the risk on this SPX trade is really on the top.

I think there is a pretty strong probability that the market will lose some steam in the next few weeks, but I’m not going to hold my breath! The recent rally has sort of fizzled out, but 2 days really doesn’t mean much. We will see how things go over the next 4 weeks.

I’ll keep an eye on this trade as the day develops and we’ll see where it lands. Ideally I’ll be able to get the fill for the 1250/1245 Put spread to finish the condor. If not, I’m still looking at a 6% ROI, and I’ll work on finding another trade to fill out the condor.

Update
Got a fill on the 1255/1250 Put spread. I’ve updated the trade above to reflect it.

Categories: Options Trading

2 Responses to “may 2006 spx iron condor”

bruce wrote a comment on May 18, 2006

Hi,

I enjoy reading about your trading experiences. For the Condor trade above, were you able to buy it for reduced margin; i.e. required margin for just one side of the trade?

Thanks.

ryan wrote a comment on May 18, 2006

Hey Bruce – thanks for the kind words The trade mentioned here has a $500 margin requirement per side per contract. Because of the nature of an Iron Condor that expires in the same month (ex: all four strikes expire in May) my broker only holds a margin requirement on one side.

Basically, if you were to open the first Bull Put Spread and sell 10 contracts, the Margin requirement would be $5,000. You would only need to put up $4,650 of your own money. That is because you would take in $350 in credit for opening the spread. Of course you will need to back out commissions in the final calculations.

Then, when we opened the second spread, the margin would be another $5,000, but I can’t be wrong in both directions at the same time so my broker doesn’t hold margin on that side. In this case, I would get $300 in my account (less commissions) and still have a $5,000 margin hold for the entire position.

As you can see, it is important to have a broker that understands options, otherwise you would have to have $10,000 available for margin, when your risk is really only $5,000.