Iron Condor Options Trade – XLE

Posted in: Options Trading, Stock Trading, Trade Of The Week, Trading Article

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In this week’s NetPicks Options Trade Of The Week,  we will take a look at an Iron Condor on XLE which is the energy ETF that we trade.

Looking at the chart below, we can see that XLE has been stuck in a sideways range for the last number of weeks. This is coming off a few months back in late 2017 and early 2018 where we had big moves in both directions.

It is normal for a stock to consolidate after big gains like this and because of that, we are looking to take a trade that will benefit from sideways move.

That is why Options trading is an important part of the trading business of many traders.

The flexibility that Options trading has especially when we are faced with sideways price movement in any instrument where we can trade the Option contract instead of the underlying asset.

XLE Chart
XLE Chart

 

What is An Iron Condor Options Trade?

The Iron Condor is where traders sell an out of the money call spread and an out of the money put spread at the same time. While many traders get intimidated by selling options, this is actually a very safe trade.

By selling spreads, we are able to be in a risk defined trade. We know what our maximum loss would be if we are dead wrong on market direction. This helps me sleep better at night, especially in a volatile environment like we are seeing right now in equities.

XLE Stats
XLE Stats

 

Iron Condor Trade Details

  • We are selling the April 69.5/70.5 call spread and the 66.5/65.5 put spread at the same time.
  • We are collecting $.47 per spread which gives us a maximum profit potential of $47 per spread.
  • We are risking $53 per spread to put the trade on.
XLE sheet
XLE Iron Condor Trade Details
XLE Trade Page
XLE Trade Page

 

Break Even Points + 5 Ways To Make Money

We have 2 break-even points on this trade at $69.97 and $66.03.

These break evens define our profit window that we need XLE to stay inside of. As long as price stays inside of our profit window we get to make money.

We don’t care if price:

  • Moves higher
  • Moves lower
  • Moves sideways

We also make money from time decay adding up and volatility decreasing. This means we have 5 different ways of making money on the trade.

XLE Order Confirm
XLE Order Confirm

The Iron Condor won’t leave us with a home run profit potential but it is a great way to generate some income in a choppy market environment. We will track this trade over the next few weeks to see if we can book a profit on XLE.


Open Trade Update

A few weeks back we sold an Iron Condor on TWTR expecting a sideways move. Over the last 2 weeks this trade has been all over the place. We have had decent moves back and forth but with very little follow through.

We sold the April monthly 33.5/34.5/29/28 Iron Condor for $.52. This trade is still open for us and trading at $.56 per spread so we are down $.04 or $4 per spread

We will continue to hold this trade going into next week. We need price above $28.50 over the next 2 weeks in order for us to get back into profit. We will update this one again next week to see if we can take the trade off with a profit.

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CoachMike

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