The Broader Markets
Last Week – SPY was higher by just 0.25% last week, less than 1.6% move options were pricing.
This Week – SPY options are pricing a 1.7% move for the upcoming week.
Implied Volatility / VIX – The VIX closed the week near 21, unchanged from the week before.
Expected Moves for This Week (via Options AI)
- SPY 1.7% (+/- $7)
- QQQ 2.4% (+/- $7)
- IWM 2.1% (+/- $4)
- DIA 1.4% (+/- $4.50)
Over the past few weeks we looked at Credit Call Spreads and then Credit Put Spreads. This week we’ll introduce the concept of combining those positions into an Iron Condor or Butterfly and go into further detail of the differences in later posts.
Iron Condor and Iron Butterfly
We’ve seen how a Credit Call Spread can be seen as needing a stock to stay below a certain level and a Credit Put Spread as needing a stock to stay above a certain level. Therefore, if we combine both strategies by trading them simultaneously, it follows that we have a strategy where we are looking for a stock to stay within a range.
Both the Iron Condor and the Iron Butterfly strategy simultaneously sells a Credit Call Spread, and a Credit Put Spread to create a range of profitability if the underlying stock stays between the higher and lower breakeven levels at expiration.
By selling both a Credit Call and a Credit Put Spread, we benefit from collecting income from both spreads. In addition, if we are wrong, we can only be wrong on one side since the underlying stock can’t end up above both our Call Spread Breakeven and below our Put Spread Breakeven. So, compared to a stand-alone Credit Call or Put Spread, we have increased our Max Gain (or income) and reduced our Max Loss by accepting a defined zone of profitability.
The key difference between the Iron Condor and Iron Butterfly is that with an Iron Condor we sell the short strikes of each of our Credit Call and Credit Put Spreads at different levels. By contrast, with an Iron Butterfly we use the same strike for selling both our short Call and Put.
Links below go to the Options AI calendar where you can see the other companies each day and click through to see charts (free to use). Recent earnings moves (actual) start with the most recent:
- Palantir PLTR / Expected Move: 11.4% / Recent moves: -21%, -16%, -9%
- Novavax NVAX / Expected Move: 11.7% / Recent moves: +1%, +1%, -11%
- Coinbase COIN / Expected Move: 17.6% / Recent moves: -26%, -2%, -8%
- Roblox MELI / Expected Move: 12.3% / Recent moves: +3%, -26%, +42%
- TradeDesk TTD / Expected Move: 10.7% / Recent moves: -1%, +1%, +29%
- Wynn WYNN / Expected Move: 6.0% / Recent moves: -5%, -2%, -2%
- Plug PLUG / Expected Move: 10.9% / Recent moves: -6%, +2%, -1%
- Disney DIS / Expected Move: 5.3% / Recent moves: -1%, +3%, -7%
- Rivian RIVN / Expected Move: 10.1% / Recent moves: +18%, -8%, -10%
- Veru VERU / Expected Move: 22% / Recent moves: +11%, +6%, +1%
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Based upon publicly available information derived from option prices at the time of publishing. Intended for informational and educational purposes only and is not any form of recommendation of a particular security, strategy or to open a brokerage account. Options price data and past performance data should not be construed as being indicative of future results and do not guarantee future results or returns. Options involve risk, including exposing investors to potentially significant losses and are therefore not suitable for all investors. Option spreads involve additional risks that should be fully understood prior to investing. Securities trading is offered through Options AI Financial, LLC, member FINRA and SIPC.