Day Trading on Robin Hood - Part Three
In last week's post, I talked about my first week investing in options on Robin Hood. It wasn't a great week and I basically broke even. One of my favorite trading quotes is "I didn't lose money, I just paid my tuition." Well, this week we had some more tuition to pay. Purchased $137 6/28 call options on the GLD exchange traded fund on Wednesday for $1,188, thinking that gold would continue to rally. Of course, that day the Fed in a couple of speeches dashed the market's hopes of a 50 basis point rate cut in July (25 basis point cut is now a 71.9% probability) and so gold sold off and those calls quickly became worthless.
However, the good trade of the week was entering into 12 Iron Condor contracts for $1,944 on Federal Express (FDX) on Monday. The Iron Condor was setup automatically by Robin Hood (short term, some risk) as follows:
Bought 12 FDX $160 Puts expiring 6/28
Sold 12 FDX $162.5 Puts expiring 6/28
Bought 12 FDX $172.5 Calls expiring 6/28
Sold 12 FDX $170 Calls expiring 6/28
As a reminder, the Iron Condor trading strategy is non-directional, so you don't care which way the stock moves. Ideally, you just want the stock to basically stay in a narrow range set by the upper and lower "inside" put ($162.5) and call ($170) at expiration to make maximum profit. Stocks that show very little short term price movement, have very large market capitalization and high trading volume (with large option interest) are the best candidates for this structure. Not all stocks have Iron Condors available on Robin Hood, so you have to look around a bit. The advice I have read is to look for stocks that you would be happy to own in your retirement account. I was able to find Iron Condors on Robin Hood for Facebook, Apple, Amazon, Google, Disney, Nike, Intel, Netflix, Exxon Mobil, and Consolidated Edison, for example. They are also available on the QQQ and SPY exchange traded funds, which are great for short term Iron Condors in normal market environments because they typically have very low volatility in a given week. There is still the potential for some profit, even if the stock trades slightly outside these upper and lower "inside" limits. Your maximum losses are also limited, since if the stock drops or increases significantly beyond the "outside" put and call, the increase in value of the "bought" put/call will help offset the increase in value of the "sold" put/call.
I entered into this Iron Condor two days before FDX announced earnings on Wednesday of last week, which was a bit risky, since normally you would avoid earnings weeks for these since that increases volatility. The idea was to take advantage of the higher volatility leading into earnings to get a higher premium for the Iron Condor, capitalize on the significant drop in volatility post-earnings (since all the "news" is out) and hope that when it all settled down by Friday the stock would be back in the middle of the range established by the Iron Condor and the options would expire worthless. Needless to say, it was a wild ride and at one point looked like I was going to lose some money when FDX dipped down to $154 after hours post-earnings, but by the end of the week, the stock was back up to $164.50, all options expired worthless on Friday and I got to keep 100% of the premium. If successfully executed on a weekly basis, this strategy can be a nice source of positive cash flow. I also invested excess cash in Bitcoin during the week, which had its own wild ride and still managed to make a little money there as well.
I also bought a small Nike (NKE) Iron Condor on Wednesday before earnings release on Thursday for $201 that expires 7/5. Right now that one is profitable by $150 and looks like it should be fully profitable given where Nike has been trading both before and after the earnings announcement.
Overall, a profitable week and I'm planning to put another FDX Iron Condor in place for next week, now that earnings is out of the way and volatility should be way down, and while contract prices are still very solid for that stock. There is some potential for volatility with the US - China trade discussions over the weekend and FDX is potentially impacted depending on the outcome. We should know enough by the time the market opens on Monday to set something up that has a good chance of being profitable by end of week. Also looking at QQQ and SPY Iron Condors. Staying away from puts and calls, though!
Again, no fees on any of these trades with Robin Hood, which is very helpful to overall profitability.
Hopefully you found this insightful and it helps you Build Your Financial Fortress!
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