Today I took Advanced Technicals with Investools or the second time. It never ceases to amaize me that I learn something new each time I take a new investment class.
The tip I learned today is on how to calculate where to chose your strike prices on your legs of your iron condors. What Mike Follett taught us today is you look at the premium value of the at the money straddle, This is where the market makers see the market possibly move in either direction. To also see this possible range pull up a 5 year chart(I use think or swim's charts) and on a monthly time frame. Apply the average daily range study on your chart and you will see what the average daily range is for the month and how far you can expect a possible move in either direction of the underlying equity. Use this range to pick strike prices on the call side and on the put side.
For example: the SPY today was valued at about 87 dollars. Checking on tos charts the stradle was valued at over $13.00 looking at the average daily range on the monthly time frame on a 5 year chart the range was about 14 points. so taking 14 points as your possible expected move over the next month you would chose to short the 73 january put (you want 20-50 days until expiration) and you would buy the 71 january put for a credit of .35. On the call side, you would sell the january 101 call and buy the 103 january call for an aditional credit of .35. You'd bring in a total of .70 in credit with a risk of 1.30 for the trade.
Now this example is not a recomendation and is just an illistrative example to share a trading concept. I am not a licenced broker.
On another note I found out that my think or swim has a blog called the daily swim which I've provided a link to in my link section.
Tomorrow is the second day of the advanced technicals class, I'll post again if I learn anything new.
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