DebiCons (Debit Iron Condors) -Weekly Debit Verticles
DebiCons are a cheap way to trade and play big movers.
Outlook – Expensive stocks over 100 that can move a good 2 ATR’s up or down in the near term. Great earnings play or volatile stocks. Usually cheap enough to not use a stop loss. Short term cheap bi-directional strategy.
1. Choose stocks that have weekly options. TOS has a preset watchlist for these under Marketwatch tab>quotes>sprocketwheeel next to quotes>public>weekly options
2. Choose the close expiry 6-20 days out.
3. Set option chain to vertical (default in TOS sets it to the smallest spread).
4. Choose a spread that cost 1/5th the of the width of the spread. Ex: 2 pt spread <.40 cents, 5 pt spread < 1.00
5. Analyze on P/L risk graph.
6. If stock moves towards spread by 2 ATR’s in next 5 days what is the profit?
7. Profit should be at least the cost of the risk. And add commissions to cost/risk to get true risk value.
8. If you need it to be more reward on a 2 ATR move, widen the spread to 2 or 3 strikes wider (wider spread gives you a better Delta), and maybe farther OTM by 1-3 strikes ( farther OTM is cheaper, but can still be profitable on a 2 ATR move.
9. When stock moves and profit is double the cost + commissions, take half of position off the table leaving a risk free trade.
10. Place exact same debit spread on other side of stock to play opposite direction. Call spread OTM and put spread OTM = DebiCon
11. Having both positions at 1/5th the price means total is now 40% the cost of the total spread profit possible. This is a must to have 40% or less so there is still room to double your profit. This way your risk/reward is at least 40/60 or better.
* NOTE – these are best for stocks over 100$ and have IV in the low 1/3 of its range. And prior to a news release is a plus also.
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