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David Jay
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Initially David trained as a medical doctor but since then left the profession to pursue his passion in the financial markets. Currently David is a full time options trader and entrepreneur and writes a blog about his trading insights at blog.theoptionstradingcourse.com.
My company:
The Options Trading Course
My blog:
The Options Trading Course Blog
  • Falling Volatility - Profiting from market calm using RUT 0 comments
    Aug 11, 2011 1:08 PM | about stocks: IWM

    The markets went haywire over the last couple of weeks, with a real stock market crash in the making.

    Now we're experiencing a recovery with falling volatility levels on most stocks and indices and it seems that some semblence of calm is pervading the markets.

    I've opened an options trading strategy to take advantage of the tendency for volatility to decline.  The good thing about the trade is that if i'm wrong, the potential loss is limited, since I'll be using the iron condor strategy.

    Today I've opened an iron condor on RUT.  The reason for using RUT is that the volatility on RUT has been pumped up the most out of all the indices and it is relatively liquid which is important for options trading.

    The IV (implied volatility) for the August expiry series is 58.9% and the RVX (the volatility index on the Russell 2000, similar to the VIX for the SPY) is at 47.4.

    I sold a bull vertical put spread 660/650 for 2.55 (IV ~60%) and a bear vertical call spread 705/715 for 3.35 (IV ~46%).  

    RUT Iron Condor - at open of trade

    The maximum amount at risk is $4100 and max profit at expiration is $5900, within a range of 655 to 710.  However I don't plan to keep the trade open until expiration.

    My aim is to close the trade on Monday, realizing the time decay of the weekend and hopefully also a decrease in volatility.  

    My vega currently is -70 and theta is 234.  With time decay alone my profit range on Monday will be between 644 to 705 with the RUT trading at 683 currently.  With an estimated volatility decrease by 10%, the max profit should be $2,300.  

    RUT iron condor expected P&L on Monday

    If at anytime before this I get to even half the max profit I will close the trade.

    You can follow my blog at The Options Trading Course to get constant updates about my trades and learn more about option trading.

    Stocks: IWM
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