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.