condor, adjust both spreads taking profit in the spread not threatened and entering a debit spread...

www.simpleoptionstrategies.com

www.simpleoptionstrategies.com2

CONTENTS

SPX CREDIT SPREAD TRADE STRATEGIESGeneral Risk Management Rules

Pre-Market Routine

Post-Market Routine

SPX 0 DTE TRADEDescription

Entry

Trade Management

Exit - Take Profit

Exit - Adjustment or Roll

Exit - Stop Loss

SPX 7 DTE TRADEDescription

Entry

33

4

4

55

5

6

6

6

6

77

7

Trade Management

Exit - Take Profit


Exit - Stop Loss

7 DTE Trade/Adjustment

SPX MONTHLYDescription

Entry

Trade Management

Exit - Take Profit


Exit - Stop Loss

8

9

9

9

9

1010

10

11

12

12

12


SPX CREDIT SPREAD TRADE STRATEGIES

1. Always trade with a plan

2. Determine Max Loss and Risk/Reward before entering trade

3. Trade no more than 20% (Credit Margin) of Trading Capital

4. Do not allow more than a 2% loss/trade based on Trading Capital

5. For highly trending market, position trades to follow the trend

6. Never hold short term credit spread overnight

7. Size your trades to ensure emotions are not part of the decision making process - Trade small, trade often

8. If a position requires to be rolled, do so at least 3 days to expiration

GENERAL RISK MANAGEMENT RULES

SPX 0 DTE(0 Days to Expiration) Trade

A

SPX 7 DTE(7 Days to Expiration) Trade

B

SPX MONTHLY(30 to 45 Days to Expiration) Trade

C


Review US Dollar ($DXY) for price action that can

move the SPX

Since over 40% of all S&P 500 companies derive

their revenues from outside the US, a weak dollar

tends to favor SPX firms. And a strong dollar does

the opposite.

Review 10 Year Treasury (TNX) Rates for price action

that can move the SPX

Treasuries, complete for investment funds so when

treasury rates are high, there is a tendency for

money to shift from stocks to bonds. The opposite

is true when rates are low.

Review / ES (Futures) Trending Direction

While the SPX opens at 9:30 AM and closes at 4:00

PM Eastern, the futures markets are trade from

6:00 PM on Sunday to 5 PM Friday. Understanding

the trend and support and resistance areas are

helpful when deciding the direction of the market

during normal business hours. You will want favor

the direction of the futures market when selecting

your positions.

Review VIX level and Changes

The VIX is the volatility indicator for the SPX.

Higher volatility increases the premium prices for

SPX calls and puts. So you will want to place credit

spread trades when the VIX is higher and close

credit spread trades with the VIX is lower.

Determine Credit Spread Positions and Save in TOS

For 0 DTE trades, it is important to select the

positions you will want to use prior to the opening

of the market. I select two call credit spreads and

two put credit spreads and save the positions so

that I can quickly place my trades when the market

opens.

PRE-MARKET ROUTINE


Update Trading Journal and review trades

Determine tweaks if adjustment to trading plan is necessary Maintaining a

trade journal is important so that you have a history of your trades. What

you did right and wrong in accordance with your trade plan is important so

that you know what to do to correct mistakes.

Determine if rules were broken and why

Discipline in trading is very important. So having a rules based approach

will improve your trading performance. Acknowledging rules that were

broken and why will allow you to face your mistakes and to work your way

back to following your trade plan.

Determine if risk was within acceptable levels especially for wins

Trading is about taking acceptable risks in order to achieve success

so reviewing those risks to ensure that they are within acceptable

levels keeps you in check. At times you may take risks that allow you

to earn greater returns but that’s when complacency sets in and that

unacceptable risk may come back to bite you. As a trader you need to

constantly check that your risks remain within acceptable limits based on

your trade plan.

Determine if losses were within acceptable ranges

On the opposite side of greed is fear. When we take a loss that may be

larger than usual, fear may set in and on your subsequent trades you may

start taking losses to overcorrect your large loss. That may lead to a string

off losses that negatively affects your trade performance. This is just

another area that you may need to adjust to bring your mindset into the

proper balance.

Determine tweaks if adjustment to trading plan is necessary

Over time, market or trading conditions may change over time. Or you

may learn better ways of increasing the performance of your trades. It is

important that your trade plan be a living document that periodically gets

adjusted based any changes in the market or trading techniques that you

have learned.

POST-MARKET ROUTINE


1Enter ½ position first, then the remainder of position after

directional confirmation. You may also enter full position but does introduce additional risk

2Entry may be done within 5-10 minutes after the market opens to catch

higher volatility levels or when trend has not been clearly identified, waiting for market stabilization is acceptable and at times preferable

4Premium should be between .35 - .70… or less if you choose to be a greater

distance from the market . The use of wider spreads (10 to 20 points) can be used to gain greater distance from the market to lower your risk.

3 An alternate entry may be when a short term reversal has been identified

5 Ensure support and resistance levels are clearly determined

ENTRYSPX 0 DTE TRADE

1. The trade is made up of either a call credit spread, a

put credit spread, or both using an Iron Condor

2. Trade is entered on the day it expires and considered

a day trade if closed before it expires

3. It is a high probability trade since it is suitable for a

range bound market, where market spends 80% of

their time

4. Max loss and margin requirement can be significant

5. Risk/Reward is very bad since it is a credit spread

and max gain is the initial premium collected and

max loss is the difference between the short leg

and long leg times the number of contracts minus

the credit received

6. Exit strategy using stop losses must clearly defined

and planned for to avoid large losses

7. Can be stressful to trade but if managed correctly

can be highly profitable

DESCRIPTION

A


After trade initiation and if market is range

bound or trending away from spread, no action is necessary other than

monitoring points of support and resistance in

case of breach

Based on certain market conditions or premium

price, it may make sense to decide on exit price in preparation to close

trade

If trade moves against a favorable trend, decide

on whether to close trade if already profitable

or hold until a positive reversal or breach

identified exit point

If you are not able to manage trade due to other commitments, it is best to close the

trade to prevent a large loss

TRADE MANAGEMENT

• For a range bound market, closing a position for .20 is advisable since it will take more time to achieve profitability

• For a trending market on the right side of the trade, the trade will have a high probability of closing for .10 or .15

• Allowing the trade to expire or attempting to close the trade for .05, is not advisable since time adds risk but if you are monitoring and able to ensure it that the market will not breach the short leg of the spread, it is acceptable

EXIT: TAKE PROFIT• Market immediately moves against

trade after trade initiation

• Identified breaks in support/resistance of a 5 minute closed candle

• If market reversal occurs that can be identified by 2 or 3 point trend line on the 5 minute chart, immediately exit the trade and assess

EXIT: STOP LOSS• Highly inadvisable

EXIT: ADJUSTMENT OR ROLL


1Enter with a ¼ position and after two or three days, add another ¼ position using different strikes based on the deltas and expiration dates. Continue this process until a full position has been reached

2The reason for starting with a ¼ position, is so that the chances of managing a large position that aggressively moves against you is

much lower

4Use a Delta of -.10 to -.12 for bull spread and .07 to .10 for bear spreads - a premium of .30 to .45 for a 5 wide spread or .50 to .70 for a 10 wide spread

should be targeted. Using wider spreads reduces risk since that creates additional distance from the market using the same premium price

3Entry should be done when there is a relative increase in volatility -

during market rallies, wait for pullback to enter and during those times only a bull spread

5 Under favorable market conditions, multiple expirations can be entered but it is advisable to not exceed more than three at one time

ENTRYSPX 7 DTE TRADE



2. Trade is entered on days of relatively high volatility

and typically exited on days when volatility is lower

and when price target is achieved

3. Trade is adjusted when the short leg of either spread

comes within 20 points of the market price and 50

points when the VIX is higher than 30

4. During times that markets are rallying, it is advisable

to place only put credit spreads on market pulls back

5. For larger positions, debit spread hedges one

quarter the size and 5 points above the call spread

may be used for the call credit spreads to cover

exposure for strong market rallies

6. If placing a trade on a day that 7 DTE is not available,

it is better to place the trade using 8 DTE

7. It is advisable to not use a Monday expiration date

since the position may need to be closed when the

there are 0 days to expiration

DESCRIPTION

B


After trade initiation and if market is range bound or

trending away from spread, no action is necessary other

than monitoring points of support and resistance

areas in case position becomes threatened

In the case of an Iron Condor, adjust both

spreads taking profit in the spread not threatened

and entering a debit spread for the spread that is threatened moving both

to an expiration that is three to seven days out

If one of the short legs of the trade comes within 20 points of market price or 50 points when the VIX

is over 30, prepare to roll your position(s) to achieve balance (equal distance of each short leg to market)

- adjust before trade reaches 1 DTE

The goal is to achieve a credit or break even but

there are times where it may be necessary to

provide additional distance from the market and it

would be acceptable for the adjustment result in a

debit

Positions that have been adjusted have a tendency

to be adjusted multiple times due to the goal of

achieving a credit or break even as a result of the

adjustment

If the market moves aggressively against the put credit spread (pcs), follow the

same process as mentioned above, and add a ccs if one is not already part of the trade. Managing a pcs that is threatened,

is less costly, due to higher volatility, than a ccs. So consider only trading pcs’ only since markets spend most of their

time moving sideways to up

If the market moves aggressively against the call credit spread (ccs), it is very important to aggressively

adjust the trade in the direction of the market early and often and not allow

the spread to go ITM. That means that taking a credit or breaking even may

not be possible. Use the put credit spread to finance the ccs cost

TRADE MANAGEMENT


• An acceptable profit is fifty to eighty percent of credit received or greater if market conditions are favorable

• For positions that have been rolled or adjusted, profit target should be twenty to fifty percent of credit

EXIT: TAKE PROFIT• It is not necessary to use stop losses to

exit this trade

EXIT: STOP LOSS• Refer to Trade Management Guidelines

and example adjustment below


7 DTE TRADE/ADJUSTMENTHere is an example of a trade adjustment for a 7 DTE Trade.

In this case the market move higher the day after the trade was initiated. As you can see, both the call spread and put spread were rolled up and out. The call spread was rolled 20 points higher for a debit of $.35. The put spread was rolled 10 points higher for a for a credit of $.30 So the total cost of the roll was $.05. The position was closed at $.20 for a total profit of $.60 including the adjustment.

3028

2997

7/26 7/29 7/30 7/31

3020

7/24

2997

3005

7/23

2989

BTC 5 SPX 31 JUL 192955/2950 PUT @.10

STO -5 VERT ROLL SPX 31 JUL 19/29 JUL 19 2955/2950/2945/2940 PUT @.30

STO -5 SPX 29 JUL 19 2945/2940 PUT @.45

BTC 5 SPX 31 JUL 193055/3060 CALL @.10

STO -5 VERT ROLL SPX 31 JUL 19/29 JUL 19 3055/3060/3035/3040 CALL @-.35

STO -5 SPX 29 JUL 19 3035/3040 CALL @.40

CLOSED TRADE FOR .60 PROFIT

PAID.05 TO ROLL

COLLECTED .85 PREMIUM


1 Entry should be thirty to sixty days prior to expiration

2The ideal way to enter the position is to leg in with a quarter

position during relative increases in volatility and add to the same strikes or other strikes using the deltas listed below to reduce risk

4Bear spreads should be entered cautiously with a hedge using a debit spread 5 points above the long position of the spread and

one quarter the size of the call credit spread

3 Ideally the trade is entered during periods of high volatility and exited during times of low volatility

5 Use a Delta of .10 to .12 for bull spread and .07 to .10 for bear spreads - a premium of .30 to .45 should be targeted

ENTRYSPX MONTHLY



2. Trade is entered on days of relatively high volatility,

30 - 60 DTE and typically exited on days when

volatility is lower and when price target is achieved

3. The trade is adjusted when the short leg of either

spread comes within 1.5% to 2.5% of the market

price. Higher percentages should be considered

when the VIX is higher than 30

4. During times that markets are rallying, it is advisable

to place only put credit spreads on market pulls back

5. For larger positions, debit spread hedges should be

used for the call credit spreads to cover exposure

for strong market rallies

DESCRIPTION

C


After trade initiation and if market is range bound or

trending away from spread, no action is necessary other

than monitoring points of support and resistance

areas in case position becomes threatened

In the case of an Iron Condor, adjust both spreads

taking profit in the spread not threatened and entering

a debit spread for the spread that is threatened moving both to either the

next month’s expiration or a weekly spread that is

suitable

If one of the short legs of the trade comes within 1.5% to 2.5 % of the market price,

prepare to roll your position(s) to achieve balance (equal

distance of each short leg to market) - adjust before trade reaches 1.5% of the market

price higher percentages should be considered when

the VIX is higher than 30

If the trade only includes a bull spread, adjust the

spread to the next monthly expiration and add a call

credit spread

The goal is to achieve a credit or break even but

there are times where it may be necessary to

provide additional distance from the market and it

would be acceptable for the adjustment result in a debit

TRADE MANAGEMENT


• An acceptable profit is fifty to eighty percent of credit received or greater if market conditions are favorable

• For positions that have been rolled or adjusted, profit target should be twenty to fifty percent of credit

• It is also acceptable to allow the trade to expire worthless as long as there is a least a 10% distance to the market price

EXIT: TAKE PROFIT• It is not necessary to use stop losses to

exit this trade

EXIT: STOP LOSS• Refer to the Trade Management section

above

• Spread Adjust Up/Down within Same Expiration (Ideal)

• Spread Adjust by Moving to Later Expiration

• Spread Adjust Up/Down and by Moving to Later Expiration


www.simpleoptionstrategies.com

condor, adjust both spreads taking profit in the spread not threatened and entering a debit spread...

Documents