Strategic Mindset: Market Neutral with possibilities of Surges in Volatility.
Target: RSX trading @ $30.19
Commit Criteria: RSX Implied Volatility is overpriced relative to its forecast volatility of 5.24% over the trade period. We are looking for possible price movement but for it to stay within its $27.00 to $33.00 price range until the exit of this trade.
Tactic: Opening 25 RSX May 2012 Iron Condors (strikes [24/27/33/36]) for a $0.45 credit
Tactical Employment of Iron Condor:
- Buying to Open 25 RSX May 2012 $36.00 Calls
- Selling to Open 25 RSX May 2012 $33.00 Calls
- Selling to Open 25 RSX May 2012 $27.00 Puts
- Buying to Open 25 RSX May 2012 $24.00 Puts
- Net Credit: $45.00 per Iron Condor for a total of $1125.00
- Max Gain: $1125.00
- Max Risk: -$255.00 per Iron Condor for a total risk of -$6375.00
We will be watching for a price movement near the short strikes. As the short strikes are threatened we will adjust the Iron Condor as necessary.
We don't want trade expectancy dropping below 2.00%. Based on this we have two price targets at which we need to consider an adjustment. RSX trading below $27.26 and above $32.24 are triggers for adjustment.
We will wait for this Iron Condor to expire worthless taking the $1125.00 credit as profit.
Exit Tactic:We will wait for this Iron Condor to expire worthless, adjusting as necessary.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. We hold this position in the Top Gun Options Advanced Model Portfolio.