0DTE Iron Fly Strategy: $1.5M in 2 Years Trading SPX Options (Step-by-Step Guide)

Summary

In this insightful interview, Dale Perryman shares his strategy for trading Zer DTE Iron Flies on SPX, a high-risk, high-reward options approach. By selling at-the-money calls and puts with specific opening and closing rules, traders can manage risk while aiming for significant daily profits. Dale walks through his precise entry and exit techniques, the use of multiple contracts, and the importance of staying disciplined to mitigate large drawdowns. This strategy is best suited for those with the time and knowledge to manage trades closely, leveraging volatility to maximize returns, especially in the critical final trading hours of the day.

Takeaways

• 😀 Iron Fly strategy involves a four-legged trade, primarily selling at-the-money options on SPX, with specific entry and exit rules to manage risk and maximize profit potential.
• 😀 The strategy is designed for those who can handle high volatility and are seeking larger profits, as it’s not suitable for risk-averse investors.
• 😀 The Iron Fly trade is a combination of selling a put, selling a call, and buying two wings (options further out from the at-the-money strike) to limit losses while maximizing profit potential if the price remains near the peak of the trade.
• 😀 SPX is preferred for this strategy due to its cash settlement feature, making it impossible to be assigned long or short positions. However, XSP can also be used, but it has lower liquidity.
• 😀 The strategy involves placing the first Iron Fly trade between 9:30 a.m. and 10:00 a.m. Central Time, with subsequent trades based on the premium collected and the market’s movements.
• 😀 Entry and exit decisions are based on the premium collected from the first Iron Fly trade, with additional trades triggered if the market moves by a certain amount, often in steps of $7, $10, or more.
• 😀 The strategy is dynamic, with position size increasing or decreasing based on the collected premium and market conditions, aiming for up to five open Iron Flies on high-premium days.
• 😀 A key aspect of managing this strategy involves closing positions once they reach a loss of 90-100% of the premium collected at expiration, with the goal of minimizing large losses.
• 😀 The buying power required for trading this strategy is typically between $12,500 and $20,000 per contract, depending on how many Iron Flies are opened throughout the day.
• 😀 This strategy has shown significant profits over time, with consistent reinvestment of gains back into the strategy, allowing for scaling of the account size and managing larger positions as profits grow.
• 😀 The Iron Fly strategy is not for everyone, as it requires active monitoring, a tolerance for large drawdowns, and a willingness to take calculated risks for larger profits, particularly during the final ‘Power Hour’ of trading.

Q & A

What is the Zer DTE options trading strategy discussed in the script?

The Zer DTE (Zero Days to Expiration) options trading strategy involves selling iron flies on the SPX index. It aims to capitalize on the volatility of the market, offering high profit potential but with significant risk due to its variability.

What is an iron fly strategy and how does it work?

An iron fly is a four-legged options trade where you sell a put and a call at or near the money and buy two further out-of-the-money options (put and call). The strategy profits when the underlying asset, like SPX, closes near the strike prices of the sold options at expiration.

Why does Dale Perryman prefer trading iron flies on SPX?

SPX is preferred because it cash settles, meaning there is no risk of assignment. This makes it more predictable and easier to manage compared to other options, such as XSP, which has lower liquidity.

What is the typical process for entering an iron fly trade?

Dale typically enters trades between 9:30 AM and 10:00 AM Central Time, avoiding significant news events. The first iron fly is placed close to at-the-money levels, with subsequent trades based on the price movement and the premium collected.

How does Dale manage the trade once the first iron fly is placed?

After the first iron fly is placed, additional flies are added if the price moves up or down by certain amounts. The amount collected for the first trade determines the next steps. For example, if less than $15 is collected, additional trades are made at smaller intervals, while larger collections lead to wider intervals for subsequent trades.

How does Dale handle exits from the trades?

Dale exits the trades when they reach 90-100% of their maximum loss at expiration. This can be triggered when the price moves significantly away from the initial strike prices. If the position is not profitable, the losses are cut to prevent further risk.

What are the risk management strategies used in this approach?

The primary risk management strategy is to strictly follow preset rules and avoid going 'off the reservation.' Trades are closely monitored, and the position is adjusted based on real-time market conditions. The maximum loss per contract is calculated to ensure the strategy remains manageable.

How much buying power is required to trade this strategy?

The buying power required depends on the width of the wings and the premium collected. For example, if a $15 premium is collected, the maximum risk per contract could be around $3,500. Depending on the number of flies traded, the total buying power required can range from $12,500 to $20,000 per contract.

What is the risk/reward profile of the strategy?

This strategy has a medium risk/reward profile. On a scale from 1 to 10, where 1 is very low risk and 10 is very high risk, it rates about a 6. It involves significant volatility, but careful management can lead to large profits, although large losses are also possible.

Who is this strategy suitable for?

This strategy is suitable for individuals who have time to actively manage their trades and are comfortable with significant drawdowns. It is not recommended for those who cannot monitor the trades throughout the day or those seeking a 'set-and-forget' approach.