Track that Trade 110516

NOTE: check the comment by msheret below. It adds to the discussion

Trade Purpose: Hoping to get some practice examining iron condor adjustment choices, I opened an iron condor that is CTM (close to the money) on both sides. By the end of the day, RUT had declined by enough to make an adjustment. However, I did not want to rush into a decision.

8:40 AM CT. Bought RUT Jul 790/800P//860/870 IC
Credit $6.25
Delta of short options: each is 34
Size: 10 lots

Trade details
Commissions in last column: $7.22 x 4



The dotted line represents the P/L at July expiration

End of Day

Could have adjusted near the end of the day, but had too much else to do.

Here is a quote page of some options that can be used for adjustments. There will be much more detail in the video (later).

Here are some trades that I would consider. please note that I am doing this part with no real data. These are typical of the trades that I deem appropriate at this time (after market hours,Monday May 16). Things may look very different when the market is open for trading.

ONE: Put spreads

a) Buy Jul 810/820 put spread. Quantity depends on cost and what I can see in a risk graph. I want adequate protection or else it’s too risky to maintain this position. I don’t want to spend too much cash because the cost of buying put protection can be lost on a rally. But that’s for another discussion.’s always a difficult decision: unload hat protection when it is no longer needed (ensuing rally) or hold.

b) Buy Jul 810/800 put spread. This adds to the short 810 position and builds some 790/800/810 put butterfly spreads into the position.

c) I do not mention the 8o0/820 spread. Why? If you are torn between choice a or b, then it’s appropriate to buy the wider spread. It’s the same as buying an equal number of each spread: 810/820 and 800/810.

Two. KITE spreads. Ignore this terminology for now. This spread never loses additional money on a further decline )not counting the cost required to make the trade).

This spread consists of buying one put option and recovering part of the cost [under no circumstances are you to attempt to recover the entire cost] by selling three or four put spreads that are father out of the money. For example:

d) Buy one Jul 810P and sell 3 RUT Jul 760/770 put spreads {I’ll discuss how to choose which spreads to sell and how many at another time}

e) Buy one 810P and, for better, but more costly protection, sell 3 Jul 750/760 spreads

Please do not fall in love with this idea and use it with real money.
It offers good protection at moderate cost, but comes with risk that is not obvious.
For today, it’s just another adjustment idea.

Three. Buy puts

f) Buy Jul 810, or 820P. Expensive. Can consider 800P.

g) Buy JUN puts. 810, 820, 830. The latter is probably too costly because it is already ITM.

    These are cheaper than Jul options, but expire earlier than the position being protected.

Four. Reduce
I’d encourage you to think about making an adjustment – but we do not want to work with positions that are painful. If you believe that you must cover some of the put spreads, then do so.

Insuring your insurance

To minimize the potentially disastrous result of buying downside protection it may be a good idea to buy a small amount of inexpensive upside protection after taking care of the put problem.

A complete analysis takes a lot of time. In the real world, decisions are usually made quickly. For that reason, I’ll take the time to have a lot of details and discussion in the video.

I do not expect this to be viewed only one time – especially by rookies. Look at it now. Get what you can from it, but be sure to come back to it a couple of times as you learn other things about iron condors. This is a good review of reasonable actions to take to protect this position.

Reality check

In a real trade scenario, the call spreads that you would be short (as part of the iron condor) are probably pretty far OTM – and not anything like in this trade example. Give serious consideration to buying them to eliminate upside risk now that you spent some decent cash to protect the downside. NOTE: You do not have to buy them, but at least bid a price that you are willing to pay. This is the type of precaution that saves account from imploding.

Tuesday May 17

Further decline makes adjustment necessary for many of us.

I want to make the trade, consider alternatives and discuss all of this in some detail. It will take some time to finish. Because this is not a real trade, I do not have a sense of urgency to get the information finished and posted. I will get this information posted as quickly as I can. Please bear with me. Thank you.

Adjustment

As I write this, the market is moving up from the lows. However, let’s assume an adjustment has been made. Here is a screen shot showing market data:



I’ve seriously considered these choices and will discuss when I can give more detail:

a) Buy Jul 810P. Expensive

b) Buy 810/820P spreads. I want to look at the risk graph and greeks before picking a quantity. That software is not available right now. That’s one reason for having backup.

c) Buy 810/800P spreads.

d) Buy one 810 P and sell ‘a few’ Jul 770/760 put spreads

e) Buy one 810 P and sell ‘a few’ Jul750/760 put spreads

f) Buy Jun puts: see below

The Video

To see larger images:





The PP images

Click here to open PP (if you have the program installed on your computer): SlidesForZoom

Part 01





Part 02



I am not going to follow this trade any farther. We never did chose a specific adjustment, so there is no ‘true position’ to follow. I will establish another iron condor soon. Or you may suggest one for us.

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