web’s weekly roundup april 4, 2015 twitter: @marketwebs presenter: web begole

Web’s Weekly RoundupApril 4, 2015

Twitter: @MarketWebs

Presenter: Web Begole

Day trading, short term trading, options trading, and futures trading are extremely risky undertakings. They generally are not appropriate for someone with limited capital, little or no trading experience, and/ or a low tolerance for risk. Never execute a trade unless you can afford to and are prepared to lose your entire investment. All trading operations involve serious risks, and you can lose your entire investment. No trades are recommendations or advice and we cannot be sued for losses of capital. All trades are for educational purposes only. Contact your broker or RAI for execution, margin, and other capital requirements. Everyone watching presentation adheres to ALL disclaimers on www.optionhacker.com and www.keeneonthemarket.com

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Web’s Weekly Roundup -- April 4, 2015

• Analysis of /ES (S&P 500 Futures) and forecast

• Analysis of /TF (Russell 2000 Futures) and forecast

• The Ins & Outs of Legging Option Strategies

Legging into an Iron Condor

Managing the Condor

Complications of Legging Out

• Q&A Time

/ES Futures (S&P 500) YTD 2015

4

Opening Price: 2047.25Current Price: 2039.75

High: 2110.00Low: 1962.50

O/C Change: -7.50ptsH/L Range: 147.50

Notable Pattern:Resistance at April POC, now trading back at April’s value area low. But has not traded below the value area yet.

Forecast:I can’t help but think the topping pattern continues.At the moment we’re looking to break below value.I look for near term support at 2020 with 1990 coming in below that.

/TF Futures (Russell 2000) YTD 2015

5

Opening Price: 1199.40Current Price: 1236.60

High: 1265.20Low: 1134.90

O/C Change: +37.20ptsH/L Range: 130.30pts

Notable Pattern:Unlike the /ES, /NQ, /YM,The Russell had strength above value through much of March. But it has broken into April’s value again at the end of trading Friday.

Forecast:This action leads me to believe the Russell will continue sliding to at least 1229.80 and potentially further to 1205 in April.

Looking Ahead

• Overall:

• Things are starting to look weak, with only the Small Caps seeing any strength.

• A large sell-off in the early morning on Friday after a particularly bad Non-Farm Payroll

number has put things technically into a weaker stance with the Small Caps looking to

drag everything down in the near term.

The Ins & Outs of Legging Option Strategies

• Last week we discussed managing Iron Condors.

• I got a lot of responses with concerns:– What about all the commission charges throughout the management process?– What about legging into the Iron Condor instead of establishing it from the beginning?– Why aren’t you using technicals to establish the trade instead of just the option chain?

• So I thought we’d spend this week looking at all of these things and discussing all of this further!

• We’ll use TSLA which is not currently at its highest levels of Implied Volatility, but certainly still higher than KO has ever been.• We’ll leg into an Iron Condor, manage into an Iron Butterfly, and discuss the options for legging out of the butterfly.• We’ll assume a commissions rate of $1.50 per option contract per trade, no ticket charge.• We’ll use the MarketWebs to establish are technical readings.

• Remember, the expectation of an Iron Condor (selling a call spread, and selling a put spread) is that the price will stay within a certain range between now an expiration. For the sake of discipline in the messy process of legging, I must bear in mind the parameters of the Iron Condor I would sell today if I weren’t legging in over time.

7


• TSLA Friday, February 20th, 2015, End Of Day (TSLA closes at 217.11)

8

Call Delta Call Mark Strike Put Mark Put Delta

1.00 $51.97 170 $0.38 -.03

.94 $47.02 175 $0.48 -.04

.93 $42.17 180 $0.65 -.06

.91 $37.37 185 $0.91 -.08

.89 $32.90 190 $1.34 -.11

.85 $23.95 195 $1.89 -.15

.80 $19.75 200 $2.73 -.20

.73 $15.87 205 $3.85 -.27

.65 $12.40 210 $5.37 -.35

.56 $9.40 215 $7.37 -.44

.46 $6.92 220 $9.85 -.54

.37 $4.90 225 $12.87 -.63

.28 $3.40 230 $16.32 -.72

.21 $2.29 235 $20.22 -.79

.15 $1.51 240 $24.35 -.86

.11 $1.00 245 $29.05 -.89

.08 $0.67 250 $33.87 -.91

.05 $0.46 255 $38.77 -.92

.04 $0.33 260 $43.25 -.96

.03 $0.24 265 $48.12 -.98

• March Option Chain (28 DTE)

• The narrow strangle is pricing an expected move of +/-$19.25IE: Either $198 or $236 at expiration.

• I think TSLA has a lot of premium in it, and I think I want to go for an Iron Condor on it. But I want to leg into it and maximize my reward potential.

• So the question is, which side of the condor do I establish here?

And secondly, how much risk do I want to take with it?



9

On the weekly chart, we can see TSLA in a down channel, consolidating at the bottom of yearly value (below the POC).Today it’s closing near the top of the channel (or what will be the top come Monday’s opening)

On the daily chart we see some strength in TSLA, with a sell-off on earnings but a rally ever since. Notably it is at the top of the value area for the month of February at the end of the day here and looking to potentially break out above.

Combining the two charts, I think that TSLA is near upward resistance and don’t believe the expected upside move (to $236) is in the cards in the near term. So I think it’s best to establish the credit call spread first, but where?The top of the channel should be around 220 next week, so we’ll start there…



10


1.00 $51.97 170 $0.38 -.03

.94 $47.02 175 $0.48 -.04

.93 $42.17 180 $0.65 -.06

.91 $37.37 185 $0.91 -.08

.89 $32.90 190 $1.34 -.11

.85 $23.95 195 $1.89 -.15

.80 $19.75 200 $2.73 -.20

.73 $15.87 205 $3.85 -.27

.65 $12.40 210 $5.37 -.35

.56 $9.40 215 $7.37 -.44

.46 $6.92 220 $9.85 -.54

.37 $4.90 225 $12.87 -.63

.28 $3.40 230 $16.32 -.72

.21 $2.29 235 $20.22 -.79

.15 $1.51 240 $24.35 -.86

.11 $1.00 245 $29.05 -.89

.08 $0.67 250 $33.87 -.91

.05 $0.46 255 $38.77 -.92

.04 $0.33 260 $43.25 -.96

.03 $0.24 265 $48.12 -.98



• So the question is, which side of the condor do I establish here?The credit call spread.And secondly, how much risk do I want to take with it?I think 220 is a safe bet based on the technicals, but how wide of a spread do I want?The 220/225 Call Spread is marking a $2.02credit ($3.98 risk)so a 2/4 reward/risk ratio. (50%)The 220/230 Call Spread is marking a $3.52credit ($6.48 risk)so a 3.5/6.5 reward/risk ratio. (54%)

• If I am extremely daring, I could look at the 215 strike….The 215/220 Call Spread is marking a $2.48credit ($2.52 risk)so a 2.5/2.5 reward/risk ratio. (100%)The 215/225 Call Spread is marking a $4.50credit ($5.50 risk)so a 4.5/5.5 reward/risk ratio. (81%)



11


1.00 $51.97 170 $0.38 -.03

.94 $47.02 175 $0.48 -.04

.93 $42.17 180 $0.65 -.06

.91 $37.37 185 $0.91 -.08

.89 $32.90 190 $1.34 -.11

.85 $23.95 195 $1.89 -.15

.80 $19.75 200 $2.73 -.20

.73 $15.87 205 $3.85 -.27

.65 $12.40 210 $5.37 -.35

.56 $9.40 215 $7.37 -.44

.46 $6.92 220 $9.85 -.54

.37 $4.90 225 $12.87 -.63

.28 $3.40 230 $16.32 -.72

.21 $2.29 235 $20.22 -.79

.15 $1.51 240 $24.35 -.86

.11 $1.00 245 $29.05 -.89

.08 $0.67 250 $33.87 -.91

.05 $0.46 255 $38.77 -.92

.04 $0.33 260 $43.25 -.96

.03 $0.24 265 $48.12 -.98



• Because I think the technicals are lining up for resistance and TSLA should fall lower from here, I’ll be daring and take the best reward/risk.

• So I sell the 215/220 Call Spread:I sell the 215 Call for $9.40 creditI buy the 220 Call for $6.92 debitI receive a net credit of $2.48I pay $1.50x2 commissionsMax Reward: $245 Max Risk: $255Notional Buying Power Reduction: $500

• Thus the first leg of an iron condor is established. I will bear in mind that on this day, the expected low is at $198. If we reach that level before expiration, I will look to establish the put spread side of the trade.

• Let’s move forward a week….



12


.92 $33.87 170 $0.46 -.05

.91 $29.15 175 $0.70 -.07

.89 $24.40 180 $1.07 -.10

.84 $20.12 185 $1.68 -.15

.78 $15.92 190 $2.58 -.22

.69 $12.17 195 $3.90 -.31

.59 $9.07 200 $5.70 -.41

.48 $6.40 205 $8.05 -.52

.37 $4.37 210 $10.95 -.63

.27 $2.86 215 $14.55 -.72

.19 $1.83 220 $18.35 -.81

.14 $1.18 225 $22.75 -.87

.09 $0.76 230 $27.32 -.92

.06 $0.48 235 $32.02 -.95

.04 $0.33 240 $36.50 -1.00

.03 $0.23 245 $42.07 -.95

.02 $0.18 250 $47.00 -.96

.02 $0.14 255 $51.62 -1.00

.01 $0.11 260 $56.90 -.97

.01 $0.08 265 $61.55 -1.00


• Current Position:Max Reward: $245 Max Risk: $255Notional Buying Power Reduction: $500

• With the stock trading near 205, I’m not down to my target for putting on the put credit spread.

• The call spread is now marking $1.03 (less than 50% of what I originally received)

• I could roll down the call spread to the 210/215:Buying back the 215/220 for $1.03Selling the 210/215 for $1.51 creditCommissions of $1.50x4 Max gain of $42Position would be:Max Reward: $287 Max Risk: $223Notional Buying Power Reduction: $500

• Let’s leave it alone for now… and move forward another week…


• TSLA Friday, March 6th, 2015, End Of Day (TSLA closes at 193.88)

13


.93 $24.22 170 $0.59 -.07

.88 $19.87 175 $0.95 -.11

.81 $15.57 180 $1.60 -.18

.73 $11.45 185 $2.68 -.27

.62 $8.12 190 $4.35 -.39

.48 $5.42 195 $6.60 -.52

.35 $3.37 200 $9.57 -.65

.24 $2.02 205 $13.27 -.75

.16 $1.16 210 $17.42 -.84

.10 $0.65 215 $21.92 -.90

.06 $0.37 220 $26.65 -.93

.04 $0.25 225 $28.92 -.97

.02 $0.15 230 $36.37 -.97

.02 $0.10 235 $41.22 -.99

.02 $0.10 240 $46.20 -.99

.01 $0.07 245 $51.00 -1.00

.01 $0.07 250 $55.95 -1.00

.01 $0.06 255 $63.15 -1.00

.01 $0.06 260 $66.22 -.99

.01 $0.04 265 $70.65 -1.00



• With the stock trading near 195, I’m at my target for putting on the put credit spread.

• The call spread is now marking $0.28 (less than 15% of what I originally received)

• Let’s look at how the charts are lining up…



14

On the weekly chart, we can see TSLA still in the down channel, ending the week below the yearly value area, we may find supportat this level.

On the daily chart we see TSLA breaking below March’s value area and looking to possibly head lower.

Combining the two charts, I think that TSLA is still overall weak. I remember that I only have two more weeks left in the March option chain and may want to look for TSLA to find some temporary support again at the bottom of the yearly value area.



15


.93 $24.22 170 $0.59 -.07

.88 $19.87 175 $0.95 -.11

.81 $15.57 180 $1.60 -.18

.73 $11.45 185 $2.68 -.27

.62 $8.12 190 $4.35 -.39

.48 $5.42 195 $6.60 -.52

.35 $3.37 200 $9.57 -.65

.24 $2.02 205 $13.27 -.75

.16 $1.16 210 $17.42 -.84

.10 $0.65 215 $21.92 -.90

.06 $0.37 220 $26.65 -.93

.04 $0.25 225 $28.92 -.97

.02 $0.15 230 $36.37 -.97

.02 $0.10 235 $41.22 -.99

.02 $0.10 240 $46.20 -.99

.01 $0.07 245 $51.00 -1.00

.01 $0.07 250 $55.95 -1.00

.01 $0.06 255 $63.15 -1.00

.01 $0.06 260 $66.22 -.99

.01 $0.04 265 $70.65 -1.00



• So I’ll stick to my plan and sell a put credit spread here. I only want to sell a 5pt wide spread because it won’t take up any extra buying power.

• So I look to sell the 190/195 Put Spread:Sell the 195 Put for $6.60 CreditBuy the 190 Put for $4.35 DebitI receive $225 – $1.50x2New position:Max Reward: $467 Max Risk: $33Notional Buying Power Reduction: $500

• But what about that call spread….Let’s look at the chart again….



16

On the weekly, TSLA may move back into value, if it doesn’t it will run into resistance around 198, if it does, upside is unknown.

On the daily chart we see the POC at 203, if TSLA breaks back into value, that’s likely going to be it’s stopping point by March expiration.

Combining the two charts, I think that TSLA is still overall weak, with limited upside momentum remaining.Given this, I feel safe rolling down the call spread to 205/210 or perhaps 200/205 if I’m aggressive.



17


.93 $24.22 170 $0.59 -.07

.88 $19.87 175 $0.95 -.11

.81 $15.57 180 $1.60 -.18

.73 $11.45 185 $2.68 -.27

.62 $8.12 190 $4.35 -.39

.48 $5.42 195 $6.60 -.52

.35 $3.37 200 $9.57 -.65

.24 $2.02 205 $13.27 -.75

.16 $1.16 210 $17.42 -.84

.10 $0.65 215 $21.92 -.90

.06 $0.37 220 $26.65 -.93

.04 $0.25 225 $28.92 -.97

.02 $0.15 230 $36.37 -.97

.02 $0.10 235 $41.22 -.99

.02 $0.10 240 $46.20 -.99

.01 $0.07 245 $51.00 -1.00

.01 $0.07 250 $55.95 -1.00

.01 $0.06 255 $63.15 -1.00

.01 $0.06 260 $66.22 -.99

.01 $0.04 265 $70.65 -1.00



• The call spread I have on is marking $0.28.

• The 205/210 Call Spread is marking $0.86The 200/205 Call Spread is marking $1.35

• Rolling to either call spread removes all risk from the position and makes the play profitable no matter what.

• So I’m aggressive, and will take the max available.

• I sell the 200/205 Call Spread for $1.35I buy the 215/220 Call Spread for $0.28I receive $107 - $1.50x4 = $101New Position:Max Reward: $568 Max Risk: $0 Min Reward: $68Notional Buying Power Reduction: $500

• On we go another week….



18


.92 $19.02 170 $0.27 -.05

.89 $14.22 175 $0.56 -.10

.81 $9.82 180 $1.15 -.19

.65 $6.05 185 $2.38 -.35

.46 $3.25 190 $4.52 -.54

.27 $1.50 195 $7.87 -.73

.14 $0.66 200 $12.00 -.86

.07 $0.30 205 $16.62 -.93

.03 $0.13 210 $21.40 -.98

.02 $0.09 215 $26.32 -1.00

.01 $0.01 220 $31.15 -1.00

.01 $0.00 225 $36.20 -1.00

.01 $0.00 230 $41.30 -1.00

.01 $0.00 235 $46.22 -1.00

.01 $0.00 240 $51.30 -1.00

.01 $0.00 245 $56.25 -1.00

.00 $0.00 250 $61.22 -1.00

.00 $0.00 255 $66.27 -1.00

.00 $0.00 260 $71.20 -1.00

.00 $0.00 265 $76.50 -1.00


• Current Position:Max Reward: $568 Max Risk: $0 Min Reward: $68Notional Buying Power Reduction: $500

• The call spread I have on is marking $0.36.The put spread I have on is marking $2.65.

• The Iron Condor now is marking $3.01

• So, now what? I can’t lose on this position, yay!But this has been a lot of work over a month for $68….

• Let’s look at the charts…



19

On the weekly, TSLA doesn’t look like it’s going back to value. On the daily TSLA also seems to be in a continual down path.

Combining the two charts, I think that TSLA is still very weak, the only option to amplify my reward now is to continue being short (ie: get shorter).



20


.92 $19.02 170 $0.27 -.05

.89 $14.22 175 $0.56 -.10

.81 $9.82 180 $1.15 -.19

.65 $6.05 185 $2.38 -.35

.46 $3.25 190 $4.52 -.54

.27 $1.50 195 $7.87 -.73

.14 $0.66 200 $12.00 -.86

.07 $0.30 205 $16.62 -.93

.03 $0.13 210 $21.40 -.98

.02 $0.09 215 $26.32 -1.00

.01 $0.01 220 $31.15 -1.00

.01 $0.00 225 $36.20 -1.00

.01 $0.00 230 $41.30 -1.00

.01 $0.00 235 $46.22 -1.00

.01 $0.00 240 $51.30 -1.00

.01 $0.00 245 $56.25 -1.00

.00 $0.00 250 $61.22 -1.00

.00 $0.00 255 $66.27 -1.00

.00 $0.00 260 $71.20 -1.00

.00 $0.00 265 $76.50 -1.00




• The Iron Condor now is marking $3.01

• Options:• Buy back the Iron Condor for $3.01

After commissions, $307, I pocket $261.

• Buy back the call spreadAfter commissions I spend $39Max Reward: $529 Max Risk: $0 Min Reward: $29

• Roll the call spread and create an Iron ButterflyRoll to the 195/200 call spread:Sell the 195/200 Spread for $0.84Buy back the 200/205 Spread for $0.36After commissions receive $42Max Reward: $610 Max Risk: $0 Min Reward: $110I choose this option… increase reward.

• Let’s move forward ½ a week….


• TSLA Wednesday, March 18th, 2015, End Of Day (TSLA closes at 200.71)

21


1.00 $30.20 170 $0.02 -.00

1.00 $25.17 175 $0.02 -.01

.94 $20.85 180 $0.05 -.01

.93 $15.92 185 $0.11 -.03

.91 $11.02 190 $0.31 -.08

.78 $6.67 195 $0.91 -.21

.54 $3.22 200 $2.55 -.46

.28 $1.20 205 $5.55 -.72

.12 $0.45 210 $9.60 -.91

.05 $0.15 215 $14.37 -.98

.02 $0.05 220 $19.32 -1.00

.01 $0.01 225 $24.85 -.92

.00 $0.01 230 $29.85 -.93

.00 $0.01 235 $35.20 -.91

.00 $0.00 240 $39.32 -1.00

.00 $0.01 245 $44.47 -.98

.00 $0.00 250 $49.22 -1.00

.00 $0.00 255 $55.12 -.94

.00 $0.00 260 $59.65 -.97

.00 $0.00 265 $64.65 -.97




• The Iron Butterfly now is marking $4.05

• Options:• Buy back the Iron Butterfly for $4.05

After commissions, $411, I pocket $199.

• Buy back the put spreadAfter commissions I spend $63Max Reward: $547 Max Risk: $0 Min Reward: $47

• Do nothing…

• Roll the put spread and invert my positionRoll to the 195/200 put spread:Sell the 195/200 Spread for $1.64Buy back the 190/195 Spread for $0.60After commissions receive $98Max Reward: $208 Max Risk: $0 Min Reward: $208I choose this option… lock in reward.

• Next day…..


• TSLA Thursday, March 19th, 2015, End Of Day (TSLA closes at 195.65)

22


1.00 $25.37 170 $0.01 -.00

1.00 $20.20 175 $0.02 -.01

1.00 $15.57 180 $0.02 -.01

1.00 $10.62 185 $0.05 -.02

.90 $5.80 190 $0.24 -.11

.56 $2.00 195 $1.42 -.44

.16 $0.37 200 $4.80 -.85

.03 $0.06 205 $9.47 -.99

.01 $0.03 210 $14.42 -1.00

.01 $0.02 215 $19.37 -1.00

.01 $0.02 220 $24.15 -1.00

.01 $0.04 225 $29.17 -1.00

.00 $0.01 230 $34.00 -1.00

.00 $0.01 235 $39.02 -1.00

.00 $0.00 240 $43.87 -1.00

.00 $0.01 245 $48.97 -1.00

.00 $0.00 250 $53.82 -1.00

.00 $0.01 255 $58.82 -1.00

.00 $0.00 260 $63.82 -1.00

.00 $0.00 265 $68.92 -1.00




• The position is now is marking $5.01

• Options:• I don’t really have any. I will try to buy back the position for no

more than $5.00 and keep $202 profit after commissions.

• Let’s say I didn’t go inverted and instead I kept the Iron Butterfly intact…



23


1.00 $25.37 170 $0.01 -.00

1.00 $20.20 175 $0.02 -.01

1.00 $15.57 180 $0.02 -.01

1.00 $10.62 185 $0.05 -.02

.90 $5.80 190 $0.24 -.11

.56 $2.00 195 $1.42 -.44

.16 $0.37 200 $4.80 -.85

.03 $0.06 205 $9.47 -.99

.01 $0.03 210 $14.42 -1.00

.01 $0.02 215 $19.37 -1.00

.01 $0.02 220 $24.15 -1.00

.01 $0.04 225 $29.17 -1.00

.00 $0.01 230 $34.00 -1.00

.00 $0.01 235 $39.02 -1.00

.00 $0.00 240 $43.87 -1.00

.00 $0.01 245 $48.97 -1.00

.00 $0.00 250 $53.82 -1.00

.00 $0.01 255 $58.82 -1.00

.00 $0.00 260 $63.82 -1.00

.00 $0.00 265 $68.92 -1.00




• The position is now is marking $2.81

• Options:• I can buy back the butterfly for $2.81

After commissions I pocket a profit of $275

• I can leave it as is and hope we expire at 195 tomorrow, attaining near maximum profits.

• I could buy back one side of the butterfly, but which side?

• Let’s say I hadn’t kept the Iron Butterfly intact and instead bought back the put spread yesterday…



24


1.00 $25.37 170 $0.01 -.00

1.00 $20.20 175 $0.02 -.01

1.00 $15.57 180 $0.02 -.01

1.00 $10.62 185 $0.05 -.02

.90 $5.80 190 $0.24 -.11

.56 $2.00 195 $1.42 -.44

.16 $0.37 200 $4.80 -.85

.03 $0.06 205 $9.47 -.99

.01 $0.03 210 $14.42 -1.00

.01 $0.02 215 $19.37 -1.00

.01 $0.02 220 $24.15 -1.00

.01 $0.04 225 $29.17 -1.00

.00 $0.01 230 $34.00 -1.00

.00 $0.01 235 $39.02 -1.00

.00 $0.00 240 $43.87 -1.00

.00 $0.01 245 $48.97 -1.00

.00 $0.00 250 $53.82 -1.00

.00 $0.01 255 $58.82 -1.00

.00 $0.00 260 $63.82 -1.00

.00 $0.00 265 $68.92 -1.00


• If I had bought back the put spread on Wednesday for $0.60, this is my situation:


• The call spread I have on is marking $1.63.• The position is now is marking $1.63

• Options:• I can buy back the call spread for $1.63

After commissions I pocket a profit of $381

• I can leave it as is and hope we expire below 195 tomorrow, attaining near maximum profits.

• Let’s look at all these options tomorrow on Expiry…



25


1.00 $13.10 185 $0.00 -.00

1.00 $8.07 190 $0.00 -.00

.99 $3.08 195 $0.00 -.00

.02 $0.00 200 $1.85 -1.00

.01 $0.00 205 $6.87 -1.00


• Iron Butterfly: (For me, this remained best option)Max Reward: $610 Max Risk: $0 Min Reward: $110Close position for $309.50Profits: $300.50If closed on Thursday, Profits: $275

• Inverted Position:Max Reward: $208 (Collected total of $708)Close position for $496Profits: $212.00If closed on Thursday, Profits: $202

• Legged out of Put SpreadMax Reward: $547 Max Risk: $0 Min Reward: $47Close position for $309.50Profits: $237.50If closed on Thursday, Profits: $381


1.00 $13.10 185 $0.00 -.00

1.00 $8.07 190 $0.00 -.00

.99 $3.08 195 $0.00 -.00

.02 $0.00 200 $1.85 -1.00

.01 $0.00 205 $6.87 -1.00


1.00 $13.10 185 $0.00 -.00

1.00 $8.07 190 $0.00 -.00

.99 $3.08 195 $0.00 -.00

.02 $0.00 200 $1.85 -1.00

.01 $0.00 205 $6.87 -1.00


• TSLA Wednesday, March 18th, 2015, End Of Day (TSLA closes at 200.71)

26


.93 $15.92 185 $0.11 -.03

.91 $11.02 190 $0.31 -.08

.78 $6.67 195 $0.91 -.21

.54 $3.22 200 $2.55 -.46

.28 $1.20 205 $5.55 -.72




• The Iron Butterfly now is marking $4.05

• I decide to buy back the call spread:I spend $348 after commissions.New Position:Max Reward: $262 Max Risk: $238

• At expiration:I do not have to manage the position at all as the put spread expires worthless.I profit $262 on the position.If closed on Thursday, Profits: $141


1.00 $13.10 185 $0.00 -.00

1.00 $8.07 190 $0.00 -.00

.99 $3.08 195 $0.00 -.00

.02 $0.00 200 $1.85 -1.00

.01 $0.00 205 $6.87 -1.00


• TSLA Recap:

• February 20th: Sold the 215/220 Call Spread for $245 credit after commissionsMax Reward: $245 Max Risk: $255

• February 27th: Did nothing.

• March 6th: Sold the 190/195 Put Spread for $222 credit after commissionsRolled to the 200/205 Call Spread for $101 credit after commissionsMax Reward: $568 Max Risk: $0 Min Reward: $68

• March 13th: Rolled to the 195/200 Call Spread for $42 credit after commissionsMax Reward: $610 Max Risk: $0 Min Reward: $110

• By keeping the 190/195/200 Iron Butterfly to expiration I profited $300.50 after commissions per 1lot.

27


• Takeaways:

• Legging into a position can be profitable if the trade assumptions are correct to begin with.If I had sold a put spread at the money to begin with instead, I would have been up the creek.

• Legging out of a position can cause a mess.While seeming advantageous at the time, it will cost money and reduce the maximum reward thus increasing risk.

• Rule #1 (and I’m not sure there is any other)I will never pay money to manage a position, but I will gladly accept money to do so.This means I don’t need to worry about commissions, if I can manage the position and after commissions still receive a credit, I will be bettering my reward and reducing my risk. If I cannot do that, I will not alter the position.

• It is important to retain the information in the option chain on the day the position was established. This allowed me to know that around 195 it was time to sell the put spread. If I had not kept track of the expected move, I would not have been legging into an Iron Condor, I would have been simply playing credit spreads.

• An Iron Condor can be reduced down to an Iron Butterfly and possibly even inverted, all for credits in the process. It must be recognized that an Iron Butterfly can not be expanded into an Iron Condor for a credit.

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Q & A With Web

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web’s weekly roundup april 4, 2015 twitter: @marketwebs presenter: web begole

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