trading the RUT and SPX

D

devilfishlane

I have been paper trading the two indices using Iron Condors for 6 months, and will start trading soon . I have 30k and plan to put on 3 IC's a month.(10 contracts each) It seems the RUT makes bigger moves and is a bit more volatile. True? I plan to put on either 1 high prob and 2 low probs or the reverse. (50 days and 30 days out) I want to get premiums around $1500 each and if no adjustments required, take them off with around $1000 prem., and out of expiration week.

Could you give me your thoughts?.... Thank you
 
That seems a bit over-leveraged, doesn't it? Wouldn't 10 contracts on the RUT/SPY roughly equate to 100 contracts IWM/SPX? Why not start with 10 IWMs and then scale accordingly as you go?
 
Quote from devilfishlane:

I have been paper trading the two indices using Iron Condors for 6 months, and will start trading soon . I have 30k and plan to put on 3 IC's a month.(10 contracts each) It seems the RUT makes bigger moves and is a bit more volatile. True? I plan to put on either 1 high prob and 2 low probs or the reverse. (50 days and 30 days out) I want to get premiums around $1500 each and if no adjustments required, take them off with around $1000 prem., and out of expiration week.

Could you give me your thoughts?.... Thank you
More...

Definitely overleveraged. 3 IC x 10 contracts x 10 points wide = 30K => one bad month (doesn't even have to be a really bad one) and you are wiped out.

Generally, yes, RUT is more volatile than SPX, but it's not set in stone!
 
Thanks for your help. What would you suggest?

7 or 8 contracts instead of 10 for each IC ?

or two 10 contracts of the SPX and RUT (low or high prob?)
 
Why rush it? You're just switching from paper to live now. Take your first month slow, so try 1 or 2 IWM and see how things go.
If it's working for you, increase slightly each month if you're profitable either as a risk percentage of your account (small like 1-5%) or set a benchmark for the number of contracts (1 per $5-$10k or something like that).

I overleveraged myself two years ago (had about 30 QQQQ calls and puts trading calendar spreads), and it can really move against you.

If you were disciplined enough to paper trade for 6 months (I'm assuming it was fairly successful), then it shouldn't be a big deal to take your time sizing up. Leverage yourself so that you:
  • Can handle an adverse move against you without panicking .
  • So you don't feel compelled to check the market every 5 minutes
  • So you can sleep.
The market will be there 6 months from now...if it's not then you've got bigger fish to fry.
My $0.02
 
I agree with TheGoonior, start small. Assuming 30K starting capital, I'd go with 2 iron condors, a maximum of 1 contract each in SPX and RUT (assuming 10-point distance between short and long) or up to 10 contracts in SPY/IWM.
 
Quote from devilfishlane:

Thanks for your help. What would you suggest?

7 or 8 contracts instead of 10 for each IC ?

or two 10 contracts of the SPX and RUT (low or high prob?)
More...

As you know, iron condors don't just fade away giving you free money. You must leave yourself some margin room to make adjustments.

Paper trading is good, but not good enough experience to risk your entire account.

I suggest 3-4 contracts for three different IC - as a start. If you are comfortable; if you manage risk well, you can trade more size as the account grows.

You have the rest of your life to trade, don't get greedy now.

There is no reason for you to trade IWM or SPY. None.

Mark
http://blog.mdwoptions.com
 
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