Hey hivers, I just wanted to share my trade from yesterday..
I knew there was some big news coming out
but I felt that a wide iron condor could encompass and survive any big moves due to news.
After a couple large price candles, I entered my IC
My strike prices were at the delta 4s, meaning my broker did their calculations and decided the price had a 4% chance of price NOT touching it. The lower the delta, the less chance of it being touched, and the safer it is, but also the less you will get paid for that option.
There is what is called theta decay which slowly decreases the value of the option as time goes on, expiring totally worthless at the end of market. for example, say you buy an option for $50.. after an hour that option is now worth $40.. then $30 after 2 hours, and so on.. until it's worth $0 at end of market. Since I am the Seller of the option (see how I SELL the option, not BUY like most traders do) I collect that premium of whoever bought the option. I want to be like the insurance company and people are paying me for their options. but instead of days, months, years of insurance at a time, I am only selling hours of premium. It's all too confusing to explain. Ask me in comments if you want more explanation.
Here is what the trade looked like after mid market..
Notice how my profit zone, or safe zone (the green dashed lined) starts off small at the beginning of the trade, but slowly increases as the option decays.
Fast forward a bit and then news hits.. price TAKES OFF.. then, it retraces some, but then it rises again.. but it doesn't stop.. I was concerned as it got closer and closer to the zone lines.
Fortunately for me, every red candle increased the probability of success for this trade. Also by looking at the options chain where my broker shows the deltas for the strikes
I could see that my strike was never higher than delta 10.. so my broker thought there was only a 10% of this price being touched. Conversely, this meant the trade had a 90% chance of winning.
Again, here's how everything ended up..
Not the nice, peaceful trade I prefer, but a win is a win, right?
:)