All That Glitters is Gold. GLD

Good Morning traders,

With this crazy rally off of the "V" bottom in the indexes, it has been a little difficult for me to find volatility to sell in the normal places I look. For most of my monthly income trades I use SPX options about 45 days out from expiration, usually placing a 10 Delta Iron Condor. With the VIX below 12, I am uncomfortable placing the put side because of how far and how fast these condors can go into the negative on even small moves down in the SPX. What I've done this month for the January expiration cycle, I've sold a 2150/2200 call spread in SPX for $3.15 at about a 20 Delta. My plan is to sell the second half of the Iron Condor before 9 Dec 2014 if I see a VIX print above 15. If not, I'll take profits on the call spread at %50 of max credit, and try again next month.

Here's what the above spread looks like:

Here's a post from Dana Lyons about "V" bottoms providing some context to the market we're in.

 

 

In an effort to find volatility to sell to keep my income goals on track, I went back into the play book for a trade that I made money on earlier in the year, and that I was reminded of by Dan Sheridan from one of his recent Youtube posts, an Iron Butterfly in GLD.

 

 

I sold this Iron Butterfly for $3.68, centered on the 115.50 strike expiring 26 Dec 2014. My target is 25% of max credit or $.92 by a pre-placed limit order. If I get anywhere close to the expiration break even points at 112 or 119, I will close and take the loss. If I am awake (I live in Japan) and I am up more than $.58, I will manually close and take profits at that point. I want to be out of the trade ASAP.

 

While the implied volatility at the time of sale was high compared to historical volatility, thus providing a high credit, the recent propensity of GLD to swing wildly is also the greatest risk in this trade. Though the options expire on the 26th of December, I ideally want to be out of the trade in 7 days or less. The Vega for the trade as I type is -98, and the Theta 33. I am looking for volatility to contract to get me out as early as I can.

If you took the time to read this far, please drop a comment or a question. I enjoy questions and engagement from other traders who do these kinds of spreads or are trying to learn.

Thanks for your time,
STT