Option traders that utilize Iron Condors understand that when you can collect majority of your premium quickly you take it off! That is what happened in our most recent trade in Align Technologies Inc($ALGN). Option traders of the Time Bandit Options trading service just closed out an Iron Condor last week with an expiration of August 17th.
Subscribers initiated the trade on Wednesday August 8th and exited the trade six days later on Aug 14th. Option traders entered the 345-382.5 Iron Condor expiring on August 17th. This means they bought the 335 puts and 392.5 calls and sold the 345 puts and 382.5 calls. They collected about $1.72 for the trade.
On August 14th, the Iron Condor option spread mid price was about $0.35 and subscribers were alerted at by email and in the forums. Some subscribers were able to exit from between $0.30 and $0.42. This represents a premium collection between 75.6% to 82%. It gives a return on risk of 15.7% to 17.1% in 6 days.
There are two reasons to take the trade off early. One is that the risk reward scenario increases dramatically. When you have a profit, you are at risk of giving that money back so the loss of profit becomes a risk. Initial trade had a risk of $8.28, but when the profit was taken into consideration with only $0.40 left to collect you had a full $9.60 at risk. The second reason to take off the trade is the amount of time left in the trade. Anytime you take take 70-80% of the profit out of a trade with several days to expiration it is always smart to remove as much risk as possible. There were 3 days left until expiration so there is no telling what could happen. For subscribers that got out early, they avoided the drop in stock price from an open of $366.73 to a low of $349.80 the next day. The stock then proceeded to break the short put strike the next two days but we had a rally at expiration to close the week at $357.3.
If the subscriber took it off early they locked in 15.7-17.1 % profits, but the subscribers that held on and hit the maximum collection of revenue of 100% made 20.7% return on risk.