Advanced Option Trading Strategies
and Concepts

2. Adaptive Trading for S&P 500 Options

The S&P market attracts many traders, however, high margins and rapid price moves of the underlying contract "shake out" everyone except the most sophisticated, well-capitalized traders.

I will show you my favorite way to trade this market and how some pros "tame the S&P - how they trade S&P options with tightly controlled risk and with a trade horizon of about 1 month. Retail traders like yourself can do what professionals do - Adaptive Trading for S&P 500 options. This includes S&P calendar condors, calendar butterflies and strangle swaps. This article focuses on Calendar Condors.

Calendar Condors are suitable exclusively for the SP options market because they require tradable options in 3 or 4 different contract months on a very large underlying futures contract. A Calendar Condor is the combination of a calendar spread and a reverse calendar spread using options that have significant time premium.

S&P Calendar Condors have multiple benefits:

They don't need to be modified unless the SP futures move 5000 points. So it frees you up to focus on other things.

They're little affected by the level of implied volatility or by expansion and contraction of implied volatility.

Calendar Condors are within reach of most accounts since required margin is only a couple thousand dollars per Condor.

In short, the S&P Calendar Condor is a "delta neutral and vega neutral" position which gives traders a nearly perfect way to earn positive time decay with limited risk of loss from market movement or from changes in option premium levels.

Don't confuse Calendar Condors with Dual Credit Spreads. Calendar Condors use options in multiple months whereas Dual Credit Spreads consist of options in a single month. Calendar Condors consist of calendar and reverse calendar spreads. Dual Credit spreads are, as their name suggests, call and put vertical credit spreads. Calendar Condors profit over a wide range of SP prices and are adjustable. Dual Credit Spreads profit over a narrower range and are not adjustable.

I expect that you will be surprised at how simple and powerful these positions are, but a word of advice; it's vital that your orders are placed with floorbrokers who have established relationships with floortraders who quote markets and routinely trade these spreads. It would be a mistake to attempt to trade them online or with a broker who is unfamiliar with this type of trading.

If this type of trading interests you, please contact me.

and his staff for brokerage services and personal coaching.