A Tasty Standard - 45 DTE SPX Iron Condors

I never posted a thread in the "Trading Systems" forum before, but here goes.

I am going to live trade the 45 DTE SPX Iron Condors (IC) that I'm in regularly. This is as close as I come to a systematic approach to trading options. Probably one of the reasons I have not gone broke trading options over the last 15 years is I regularly trade these ICs in SPX or (earlier) SPY. There are a lot of seasoned options traders who use the 45dte IC as a major bread & butter part of their trading.

The 45 DTE (45 days to expiration) Iron Condor is a "Tasty Standard" because it has been studied to death by the folks at Tastytrade, Tom Sosnoff et al. You can go to the tastylive.com site and search 45dte Iron Condor and you'll find dozens of videos. Many of them are also posted on youtube.

https://www.tastylive.com/search?q=4...or&size=n_20_n

I'll have some explanatory thread posts to follow.

I will note: rules can be broken. The more adaptable and proficient you are, the more likely it is that you will be comfortable with breaking rules.

But, here are some explanations, rules, and general principles.

An Iron Condor is a spread trade. Basically, you are selling an option and buying another further out option at the same expiration date. If you do that with calls only, you'll have a short call vertical spread, or a bear call vertical. If you do the same thing with puts, at the same time, you'll be adding a bull put vertical, and then you'll have an Iron Condor.

The tasty standard (and there are variations) is to enter these vertical spreads @ 45 days to expiration (45 dte). Typically, the short options (the guts) are at 20 delta, and the wings are $5, $10, or $20 beyond that.

Short verticals are put on for a credit. The tasty standard for managing the trades is to take off an unchallenged leg of the trade when it reaches 50% of max profit, and to roll a challenged leg when the short strike is breached, or at 21 dte, whichever comes first. So, if you get a $10 credit when you put on the trade, and after some time you buy it back for $5, then you made $5 profit ($500 on a 1-lot). If the underlying price moves away from the spread, it will decrease in value. The options in the spread will also decrease in value through time decay (theta). I'll show how to roll a spread in due time, by example.

Note, SPX is the preferred vehicle, but you can use any options to set up an IC. I like European style option SPX because it's large, liquid, has daily expiries, and is cash settled. XSP is another euro-style option that has 10% the size of SPX. (it's the "micro" SPX)...XSP volume is kinda thin, but it's tradeable. If you're inexperienced with these but want to try trading them live, I'd recommend using 1-lot XSP....

Below is 1/2 of an IC I put on Friday. At the time, the 45dte date was Feb05 and the 20 delta call for Feb05 was at 4950. I bought the wings @ 50 pts wide - out to SPX 5,000. I usually go 20-25pts wide, but the only thing available near that was the 5,000. I sold the vertical calls for $8.25 - $825 credit per unit. Not long after the trade went on, SPX dropped and so did the value of the vertical. If SPX had dropped far enough, and the spread vertical value had dropped to $6.25, I would've bought it back at that price for a quick $2 profit. Just because it's a 45dte trade doesn't mean you'll need to hold it for long.

I didn't sell a bull put side because I am bearish on the market in the short term. There has been a massive rally in the last 2 months - 8 straight green weekly candles - and I expect some profit taking in the last week of the year. That's what I'm shooting for, so we'll see if I'm right. Anyway, I didn't want to put on the put side that I'd have to manage early - I wanted to be in/out of the trade pretty fast.

anyone trading options should acquire a good understanding of options Greeks. Especially germane for selling options is theta. A simple definition of theta is: the rate of decline in an option's value due to the passage of time. Aka "time decay". Time decay is an options seller's friend. Generally, if you are selling ICs, you want the underlying to be range bound while time passes. If you are just selling one side, say a short vertical call spread, then you want the underlaying price to move away from the spread strikes. That's why we call it a "bear" call vertical - it's a bearish trade.

The Feb05 SPX 4950/4500 bear calls trade above - the 4950 call has theta = -0.63 - this means that, all else being constant, the value of the 4950 call will decrease by $0.63 per day, & $0.45 per day for the 5000 call. "All else being constant' is a big "if", because everything is changing, always. Nevertheless, keep an eye on theta and understand how it changes over time and relative to the other important parameters that go into figuring an option's price.

after 1 day, for the bear calls above, SPX has come 20-25 pts closer to my short strike, but the value of the spread has not changed. it's looking like there will be a run to 4,820+ and a new ath, which i have trades set for, but no sweat on the bear calls, 4,950 is a long way north. theta for feb05 4950/5000 calls has increased to -0.70/-0.50 --- theta will increase as the strikes get closer to itm.

another day and spx another 6-7 pts closer to Feb05 4950/5000 bear calls and the spread value is underwater 20c. this will probably get worse as it appears a new ath will be magnetic to the upside, at least for the next week. i have bullish spx trades set for the near term.....

I'm looking for that 200+ drop in early Jan, i'd like to grab some cash off this credit spread. the feb05 4950 was $20 when it went on, now is about $17...that's all theta.

Last day of 2023 to get P & L's on the books. If this selling would keep going and SPX dip down to <4740, I would close out the bear calls for a $2.50-$3.00 profit and close out flat....

Out of all the call verts above for avg $4.10 net out, right at 50% profit. Watching for big moves this week and will re-deploy. I might wait to see what NFP does....

with a heavy data week, i will probably wait til Friday to put on another credit spread set.

The Feb05 4950/5000 bear calls worth about $2.35 now, so I left money on the table. No worries, and I am looking to do another trade on Friday, after the NFP.

There is still a lot of call skew, so the call spreads are paying better than the put spreads - in the test below, the 25-wide spreads are both worth about $3.15, but the calls are further, out to 14 delta, whereas the puts are at 19 delta....


I'd like to see some further dumping this week, in which case I'll probably leg in to the put side Friday.....

looking at the SPX chains, no 45dte today, it goes 39dte then 52 dte (Feb16 & Feb29)...I think markets will rally this week, SPX will be on the hunt for a new ath again. So I will wait til end of week to consider another IC sell.

SPX sideways in a ~100pt range for the last month. Still a lot of call skew and I'd like to sell into some bull strength, but at some point I just have to jump in....

in the IC above, I am at 45dte, about 20 delta @ the short strikes, collecting about $8 for $25-wide, is ok...

I am seeing what I like for SPX and if it goes up near 4800 for an opex pin I will sell the 4950/5000 Mar01 bear calls for >$10.00...

so much for pinning 4800. I'm still waiting for the bear calls play.

...lol, never short a dull tape

FILLED this IC today, $8 for 25 wide

sold another set similar to above @ Mar01, but 25 pts higher each side, for $7.50

If you want to trade cheap ICs, you can, using SPY or XSP