Emerging Markets Iron Condor

This is another bread and butter trade with an emerging markets iron condor, going out a bit further in time to October with 78 days to expiration (DTE). Emerging Markets ETF EEM has sold off rapidly due to market tariff and rate cut talk this week, which has provided inflated volatiliy. This is a limited risk range bound trade for EEM with the expectation that the market maintains its position over the next two months and that volatility contracts.

Trade entry Emerging Markets Iron Condor

Here is the trade entry for EEM iron condor:

Contracts  Expiry Date  Strike   Price   Amount   Trade
-------------------------------------------------------------
+5         Oct 18 2019  45.00  C $0.05   $ 52.69  Buy to Open
-5         Oct 18 2019  42.00  C $0.74  -$372.25  Sell to Open
-5         Oct 18 2019  38.50  P $0.76  -$317.20  Sell to Open
+5         Oct 18 2019  35.50  P $0.35   $122.79  Buy to Open
-------------------------------------------------------------
Total    	                        -$513.97 (credit)

On trade entry on 2nd August there were 78 Days to expiration DTE through to option expiration on 18th Oct. According to the 30 day rule this means that can consider exiting the trade on or after 2nd Sept. On 2nd Sept this would still leave approximately 48 calendar DTE, so there is plenty of time to adjust or exit. The following table sounds the future trade lifecycle dates when trade exit or trade adjustments could be optionally applied:

Trade Lifecycle for EEM Iron Condor

Trade Date
Trade Lifecycle (Optional)
Days to Expiration
(DTE)
2nd August 2019Trade Entry - enter Iron Condor according to original trade above78
2nd September 2019(Trade Exit) - optional earliest possible date for a full trade exit according to 30 day rule.48 to 1
13th September 2019(Trade Adjustment) - latest possible date to do a trade adjustment using the same Oct options (trade adjustments must be at least 30 DTE)78 to 30
18th October 2019Trade Exit - latest possible date to exit original Iron Condor with any optional trade adjustments that were added.1
Note: Trade Lifecycle actions that are optional are in brackets like this (Trade Adjustment) or (Trade Exit).



The option deltas sold on each side are approximately 35% on the call and 25% on the put, so there is approximately a 70% chance that the call will be touched, and a 50% chance that the put will be touched anytime between now and Oct expiration. Therefore it is likely that the short options at $42 and $38.5 will be tested at some point on this trade, but it can be held due to the limited risk. The breakeven points of $43 and $37.5 are at the high and low ends respectively of the trading range price action for the last year, so we can be reasonably confident that at some point in the next couple of months EEM could return to the the middle of this range – even if there is likely to be some short term volatility, possibly with the short options being touched.

Trade Summary

The aim will be to close the trade for a $100 to $250 profit after 30 calendar days have elapsed, but this could require being patient and waiting for volatility to come in a bit and the trade to move back into the middle of the range around the $40 mark.

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