Weeklys
Recent trades (Sep 2012 and later) can be found here.
Week of Dec 17, 2012
Will consider a trade Tuesday, Dec 18
This link not viable until the trade is made:
Find this trade on its own page.
Older trade data has been moved to Weeklys2 and Weeklys3
Important information about these Weeklys trades
Track Record
Track record of performance, including commissions (My cost at Interactive Brokers).
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Mark,
You had menitoned earlier that in the weeklies you look for short deltas of as close to 15 as you can find. When I looked shortly after opening, the delta of the 1395 was 12 and the delta of the 1400 was 8. How come you went with the delta of 8 instead of 12? — Bill
Bill,
Sometimes I choose farther OTM options.
I thought the premium was high enough for me to sell. Collect 70 cents, cover at 25 or 30 cents Wed. That’s the plan.
That’s all. Nothing sinister going on. This was also my 2nd trade. I already owned one iron condor with this expiration date and thought I should be a bit farther OTM with this trade. A lot of this is art, not science.
To be honest, I thought the market should be down far more today. The fact that it was not down much this morning, made me a bit more afraid of an immediate rally.
Mark was this trade initiated two weeks ago for expiration the week of the 20th?
No. Initiated just after the market opened today.
so you were able to fill all 10 contracts for a credit of $1 each or $1,000? I also see that you will not necessarily take what the market price is based on other posts. This is effective in order to reduce cash outlays? ( I’m asking) Thanks
dmg,
Yes. All 10 at $1.00. Someone who waited could have done better. Someone who waited to long missed this trade. Only time will tell if it is better to be in or out!
Yes. $1,000, less commissions.
I need help.
I do not know what it is that you are asking.
If you are asking will I use the prices that I used for fictional trades – then the reply is ‘no.’ These are real trades. If I do not get filled, I will mention that I placed the order, but did not get filled. And the trade will not go into my record-keeping unless it is filled.
I do not understand the reference to ‘cash outlays’
I thought the same thing when I read this. I sold the 1330/1335/1395/1400 before I saw this. Spread not in trouble yet though.
Also if you prefer a 5 pt spread, would it be better to pick RUT 750/760P; and two times 810/815C instead?
s,
Yes.
However, I made this trade in a very small account (I opened it to get a free Amazon Fire), and margin is an issue. I had to minimize margin. I assume, but do not know for sure that opening the set: one 10-point put spread and two 5-point call spreads requires $1,500 in margin. By trading the ‘regular’ iron condor, margin is only $1,000.
Good to know that at least my thinking was on the right track.
Thanks for following the trade, it is very helpful.
You always recommend covering the cheap side for a dime; was there a reason you didn’t do so today? (I got 1395/1400C filled for a dime at 11:28 so I am guessing 1400/1405C was probably a nickel at that time)
s
I bid 5 cents all day, with no fill.
I did not bid 10 cents because that felt ‘high’ compared with my 70 cent credit and the market value of the put spread.
My general philosophy is for me to suggest trade ideas and for you, the member, to decide if that specific idea is suitable for your situation. I want every member to understand what he/she is doing – rather than follow a set of binding rules.
I hope I did not specifically suggest a price for buying the ‘cheap’ spread. That price is not the same for all traders. I sometimes bid 10 cents and at other times I bid only 5 cents.
Having paid that dime, did you buy in the put spread at the end of the day?
I am comfortable buying back a part of the spread for a dime, I rarely get nickel fills till it is very late.
To your question, at the end of the day I had a tough decision, I am elaborating below, please add your analysis of my thinking and trading on this.
Near the close, the put spread was at 50c which was too high to cover for me since the short put was “only” at 19delta I didn’t feel threatened.
I was initially planning on selling a new IC of the same size on Wednesday morning to neutralize the delta a bit as my Monday size was only half the usual size I trade (this was my game plan on Sunday night to do two half size trades this week). The reversing market today had the unusual effect that I had an unbalanced delta but the position was not in danger. As a compromise I resold the 1390/1395C for 40c so my deltas got more in line. Essentially now I have the 1330/1335/1390/1395 IC now for a net credit of $1.40. The shorts are sitting at 15 and 9 deltas which is fine at the moment. If the market gap opens tomorrow by a lot I will go ahead with my earlier plan of the second weekly IC, if it stays pat I plan on just exiting this IC at 40-50c tomorrow and resuming trading next week.
Thanks
s
My plan
s_
I agree with the concept of paying any price that suits the trader. And I believe you are right. Paying 10 cents on TUESDAY is a good deal. But not THURSDAY. And WEDNESDAY is the borderline decision. We both know that the original selling price for the specific spread also matters. When selling @ 50 cents, I am far more willing to pay one dime than when the spread is sold @ 25 cents.
I like the plan with one exception: I am not sure where your ‘position limit’ comes into play. You already increased position size. Would you be comfortable adding another today, on a gap opening HIGHER?
I placed a P1295/1300 C1380/1385 for .80 when SPX was around 1340 this morning (Mon 5/14). Delta ITM: 24; Postion delta:0. This premium is lower than normal.
Bill,
Thanks for the post. 40 and 80 points OTM feels ok. A bit on the bullish side.
Hope this turns out well.
I am testing a CTM weeklys IC 1300/1305/1370/1375 spxPM this week. Executed at 8:47 for $1.40 credit (10c below mid). Done with real money.
I wasted the first 15 minutes wrestling with the RUT bids (couldn’t get filled at even 15c below mid) otherwise I believe I could have the above IC at $1.50. Looking to exit tomorrow at $0.90. No problems with deltas today.
Thanks for the post.
I agree: Over the past few months, the time to open the position is very shortly after the opening. The bids shrink after a short time. I guess that happens as soon as it becomes apparent that the gap at the opening is not continuing (at least not immediately).
I like that you have a target exit. These higher risk trades are not the place to get greedy.
Mark,
What was your slippage with your RUT (real money) trades today? I was surprised and frustrated to see no fills at reasonable prices today.
s
The problem is know what prices are reasonable.
With OptionsHouse and IB, I accepted 15 cents under mid-point for 10-lot orders.
I am willing to do this becasue I found these Weeklys trades to be profitable enough to give up the extra cash. I know that is long-term unacceptable because no strategy works forever. For now, I am willing to pay the entry fee to play the game. It is an unfair playing field.
One more point: I know these options trade in good size every day. With all that volume, there ought to be away to get better fills. Perhaps entering two-legged spreads would do better than 4. However, that does involve market-movement risk.
I placed an SPX 1265/1260 1335/1340 for $1.35 with Tradeking with SPX at 1298. It stated my put options were deltas -14 and -11 respectively. I checked the same option deltas at the same time at Ivolatility and the respective deltas were -21 and -18. Using Tradeking deltas puts me in put spreads 15 points closer and call spreads 5 points closer than if I used Ivolatility deltas. I used the Tradeking deltas because it was faster than switching back and forth from Ivolatility for data to Tradeking to trade but I think I am going to regret this trade.
Bill,
Thanks for sharing.
I show the 1265 delta at 18, with SPX = 1303 at 9:18 am. That suggests that TK is off from the rest of the world.
You did get a nice credit. Higher than your usual. That should suggest that the delta was a bit higher than usual.
Call TK. Ask them how they generate their Greeks. Ask if they include a volatility skew, or if they use a single IV for the entire set of SPX options. Tell them how different their numbers are than iVolatility.
If this trade makes you uncomfortable, consider exiting tomorrow. When you call TK, ask what happens if you exit the trade today. If your account is less than $25,000 then TradeKing’s limits on day trading are important. Ask if closing today would count as one day trade (one spread) or 4 day trades (4 legs). If FOUR, avoid closing today.
Tradeking told me they currently calculate Greeks using near term ATM fixed IV. They do not include a volatility skew. They are working to change this that should be completed in a couple of weeks or so. They also consider closing an IC as four trades with only one commission.
You cannot afford to those Greeks the way they do the calculations. I am a believer in simplifying things when they can be simplified. But this goes way too far.
There is no big problem – just use Greeks generated elsewhere.
If they consider it as 4-trades, they are likely to consider it as four day trades (but that is not guaranteed). If you feel the urge to exit today, then do it. But it may come with a penalty. An alternative is to adjust the call side, allowing you to hold until tomorrow. However, if the account is >$25,000 – then the day trade restrictions do not apply to you.
I was right about this trade going bad. With SPX heading steadily upward I cancelled my individual put and call spread orders and chased the full IC exit from where it opened at about 1.48 to where I finally caught it at 1.70 for only a .35 loss. I feel lucky. If SPX keeps rising the loss could be much worse. Now that I’ve closed my position for a loss SPX will probably drop and stay steady for the rest of the day.
Bill
Sorry for the loss.
1) I hope you (and others to whom this applies) are not taking too much time from your job. Be careful
2) Isn’t it amazing how small the losses can be – despite the big market move? It is not always this way.
3) When chasing to exit, I recommend going after the troubled (calls this time) spread first. You can always get that cheap put spread or an extra nickel or two later. Many times, the market makers do not want to sell that put spread and bidding for the whole IC attracts fewer offers.
BTW: What did you end up paying for the put spread?
Good job.
I paid to exit the IC as a whole. I don’t know what the put spread cost. Maybe I don’t understand the question.
If you look at the trade conformation, it shows the price at which each option traded. Usually, I ignore these prices, but this time I have an interest in learning whether buying the put spread hindered your ability to exit the trade at the best price.
Here is what I found:
Bought 1265 put for .75
Sold 1260 put for .50
Bill,
Thanks.
While I cannot be certain, I believe that you could have bought the call spread for the same $1.45 or less and paid only 15 or 20 cents for the put spread. As I said, it is only a guess. But many times that tiny (currently unimportant) spread gets in the way of what you are really trying to do. The only requirement is that you go get the put spread once the calls are covered. That does not mean RIGHT THIS SECOND. But you would raise the bid to 10 cents. Wait a minute and then go to 15 cents etc. It may work out badly, but the probability is that it will work out better than buying the whole condor in a single trade.
Mark,
Last Tuesday, 26 May, I placed an SPX 1295/1290 1350/1355 weekly IC for $1.10. By the time the index fell through the put spread I felt fortunate, indeed, to have bought it back for the same $1.10.
Bill,
It seems that your risk management skills are intact. Have patience and you will earn some money.
Mark,
Going by your post, your BWIC can be decomposed to mean that you sold 10 705/710/770/775 ICs. And then you sold another ten 775/780 call spreads to give you a negative bias?
s_,
Exactly right.
The BWIC is synthetically equal to an IC plus an extra call or put spread (with different strikes).
In case of trouble would you roll the call side as one spread or roll the first “embedded” spread first?
In your main blog post you say that it is simpler to handle bias with 10 put & 20 call spreads instead of the BWIC. Is the advantage of the BWIC in that you have less commissions?
I would roll the 770/775 spread, even though I do not ‘see’ that position in my account.
I never allow commissions to get in the way of trade decisions. There is always an inexpensive broker to find – when commissions are get in the way of making good trades.
The BWIC decision for me was to be conservative. If I sold extra call spreads, I wanted them to be farther OTM. Thus, I added the 775/780C spread to the iron condor to produce this BWIC position. I preferred that to selling extra 770/775C spreads.
Mark, I took a look back and noticed that the deltas that on your puts were much higher than the deltas on your calls, at the time of the trade. For the regular RUT IC. Is there any reason for this?
Matt,
No.
Obviously for the BWIC where I was selling the equivalent of twice as many call spreads, there would be a delta difference.
For the ‘regular’ iron condor, I selected spreads that felt right for me to trade. These positions tend to be near delta neutral, but not always.
Please keep in mind that this Weeklys page is one where I share what I am trading. It is essentially an FYI page. These are not intended to be lessons or suggestions.
OK, that is what I thought. The feel portion of it. Thank you very much for your response. And yes, I understand that these are shared and not intended for any other purpose than that. Thanks again Mark.
Hi Mark,
I noticed you have a tab for weeklys on the site, does the gold membership include weekly options trades? I am interested in trading the weekly options safely while earning some profit. Thanks
Hello TO,
Yes the trades are listed, but they are not recommendations.
The gold membership allows access to all pages, including the Weeklys page. In my opinion, the weekly trades come with relatively high risk – although the rewards can be outstanding. I will not suggest that any trader adopt weeklys – but if you decide that you want to do so, I list my trades for you to see how one trader uses weeklys. It is not easy to trade these puppies ‘safely.’ To make overall risk reasonable, we trade small position size.
I want you to understand what I do in that page:
I do not ‘recommend trades for one very good reason: Every trader has his/her individual needs, profit goals, risk tolerance, style of trading, choice of underlying asset etc. It is foolish to recommend one trade for ‘everyone.’ I know that many people sell trade selections, but I believe that is doing a big dis-service to their customers. I want to help you find trades that suit your personal needs. I hlep you to learn how to do that.
If Gold Members want more insight on any trade, they are free to ask, and I’ll reply.
Mark,
Today I placed an order for an SPX weekly for a credit of .90 that expired unexecuted. The midpoint fluctuated from .68 to 1.28. At 1.28 my order was .38 below midpoint and it still didn’t execute. Is this one of your reasons you do not like trading SPX? — Bill
Bill,
Yes. Sometimes I have no idea why we cannot get an order filled.
If your broker does not charge anything to cancel an order, sometimes just refreshing the order can make a difference. You could cancel and then send another order, or you could change the offer from 90 to 95 and then back to 90 once again. On occasion older orders can get lost.
Hi Bill,
The quotes were wacky all day on the SPX(Q), the bid-ask spread was at times $1.50 wide. I don’t know the reason but because of this the mid-points of lower delta options were at times higher than those closer to the money. I don’t think the mid-point meant a lot in the wide markets today.
The IC I was trying sell showed a mid-point of $1.05, but when I placed the order at 1.05 limit, I was actually filled at $1.30.
Who is your broker? You can always make sure your order is sitting on the exchange (http://www.cboe.com/cob/cob.aspx), no need to refresh then, it won’t help.
s-,
Thanks.
I believe the reason for the wider than usual markets is that the market gapped lower and it was declared to be a ‘fast market.’ But even if that is true, that ‘fast market’ should have been canceled almost immediately – the market did settle down quickly.
Sometimes the midpoints are ‘real’ because the bid is lowered by the same amount that the ask is raised. However, that dos not have to be the case. You are correct that distortions can occur.
Regarding refreshing: This has happened to me several times over the years: I canceled an order and immediately re-entered at a BETTER PRICE – and I was filled immediately. Maybe things were not as efficient in the early days of electronic trading, but that is why I still cancel/replace some orders (but never if the broker charges a fee to cancel).
My broker is Tradeking. I did call them and was told that it was sitting at the CBOE exchange so there was nothing I could do. Does this problem exist with RUT,too, or is it mainly with SPX? Thanks, Mark.
Bill,
Did they really use those words: “There is nothing you can do about it?”
SPX trades on only one exchange. Thus, there really is nothing to be done. However, I think it is horrible that they did not explain that to you. Their attitude sounds like : “this is how we handle trades and if you don’t like it, that’s your problem.”
RUT is traded on multiple exchanges. So, if you had a similar situation, I do not know if TK would have tried to help you get a fill. The only way to know for sure what is happening with orders is to have two or three accounts (what a nuisance) and enter a small order for the same trade – as simultaneously as you can do it – and then see what happens. You may end up with a double fill – or double commissions if you split the order in half – but at least you will learn what you want to know.
You could ask TK how they would handle that situation with another underlying, but that is not quite as good at getting to the bottom of this.
This “problem” happens to me only when trading the non-electronic SPX/SPXQ options like the ones this week. In my opinion it is not fair to compare it with the electronic RUT/SPXW options.
In my “personal” experience, open outcry options mid-points are not very meaningful and the spreads are always much wider. I know that Mark disagrees with me and I don’t really have much background to dispute him but I regularly get 5 cent below mid in SPXW and almost never in SPX.
Maybe switching to a DMA broker like IB or tradestation will ease your mind on where your orders are going but the CBOE COB site pretty much takes the wondering out of the equation as far as where your order is.
s_
I cannot argue with your results. I would trade where I know I can get better fills – unless I just did not like the specific underlying asset. I think that comes first.
And I agree: I prefer to trade where they allow electronic orders. I like the idea of trading the S&P 500 portfolio rather than Russell 2000, but not enough to accept the difficulty that comes with trading their options.
I think it’s great that you can get such good fills. I’m jealous.
Mark,
In my haste from checking on my 10 point longer term ICs to placing a weekly this morning, I accidentally placed a 10 point RUT weekly. Unlike yesterdays SPX order – it executed. I thought the premium of $1.25 was high for opening on Tuesday but I didn’t think enough about it to stop and figure out why. I feel a little sick that I may have done something stupid (10 point vs 5 point weekly IC). Do you think I should get out of it or maybe ride it out for awhile and see what happens? Thanks for your thoughts. — Bill
Bill,
I can understand how this happens.
My suggestions:
a) If you are uncomfortable, sell out as many as necessary to get comfortable. I don’t mean to all the way down to your regular weeklys size, but cut back on a portion.
b) Look for the quick profit. Try to exit 6 or 7 or? of them for a 20 cent profit. Even 15 cents if not happy with what you own.
c) If willing to take more risk, you can hold overnight and I’m sure you will be able to get some profit tomorrow – assuming the market behaves.
d) Convert to a 5-point IC by buying an appropriate call and put spread.
Those are quick ideas.
Yes, Tradeking told me that since my order was sitting at the exchange, there was nothing Tradeking or I could do about it not executing.
Tradeking did tell me that SPX only traded on the CBOE.
Bill,
OK, they did explain why nothing could be done.
Hi Mark:
Since your bid didn’t (65c) didn’t get filled, and since we prefer not to roll out to the following cycle (i.e., next week), would we then just close it out if we have strong push to the upside? Doesn’t look like we’ll have enough time to do anything tomorrow, right?
Thanks
fxo,
Agree not much time. There are three viable plans:
a) Take the profit on a decline, deciding how much to bid. If possible get out prior to SCOTUS (Supreme Court of the US) news (Decision on constitutionality of Obama’s health care law).
b) Take the loss on a much higher opening.
c) Look at the cost to roll down the calls by 5 points. Because that would still leave us at SCOTUS risk, this is probably not the right week to make this play.
Hi Mark:
For this week’s RUT weekly, if we only have half day tomorrow and market close on Wednesday, are you then going to try to be out on Thursday morning? Or, are you going to try to get out before the market close tomorrow (Tuesday)?
Thanks
fxo,
This trade is already profitable, but too little to exit today (it is 2:05pm and RUT = 800.10)
My plan is to take what I can get and exit tomorrow before the market closes. I cannot imagine making more than 30 or 35 cents.
That’s the plan. But if the market is quiet once again, I may hold through Thursday. My style is to never exit in the morning – unless I can get a very good price or am required to do so for risk management. I’d enter my order late Thursday afternoon.
Mark,
Here is something that has now happened twice. I place an order for a weekly IC. I go away for an hour. I come back to check on it and I see that the price is now about 55 cents above my bid but my trade has not executed. I change my bid to a higher price. As soon as I submit my higher priced bid I receive an execution of my original bid. I received 80 cents credit for an IC with a midpoint of $1.35. I called up to complain about it and was told that the bid was out there in the exchanges but they could not force someone to buy it and that it was just coincidence that it executed when I submitted the new bid. This is the second time I have experienced this “coincidence”. It gets worse. Today the RUT continued to climb so I want to sell it before the holiday. The best I could do for the IC was $2.20. I lost $1.40 on this trade in less than 24 hours. This was frustrating. — Bill
Bill,
This is 100% unacceptable.
Let’s take this in steps.
1) Did you attempt to cancel your original iron condor order before entering the higher offer? You should not enter a new price without cancelling the original.
2) The broker’s comment that they cannot force someone to trade with you is correct. But asinine. They are supposed to be looking out for you.
3) However, no one cares about the midpoints (except those of us who trade options). When you call to ask about an order, you want to know the natural bid/ask for the spread. Not that you want to trade at that price, but that is a price the morons in customer service can understand.
My bottom line – these people stink. Call to tell them you want a price correction or else you are transferring your account out of there. But first, have a new place in mind.
Bill,
One other suggestion. I don’t like this idea, but if you use this broker, you don’t have a choice. Enter an order and cancel in 4 or 5 minutes. Then re-enter when you have another 5-minutes to spend.
Thanks for your suggestions. I placed a new bid to change my orignal bid. We don’t have to cancel in one step and submit a new order in a separate second step. According to the “Change” function we can do this in one step. This has worked in the past.
Bill,
Yes. It is called cancel/replace when you do it that way. It is also how I modify my orders.
But this broker is doing something bad – and I have no clue what that is. I suggest cancel and then place a new order once confirmed that the original has been cancelled. This is not normal procedure, but something is not kosher with this broker and you have to do what you can to protect yourself.
Bill,
What concerns me is that your broker’s software may be designed to give the market makers ‘one last look’ at the order before cancel/replace goes into effect. They will deny this, so there is no need to ask.
I am hoping that the pure cancel does not do this.
Interesting on the Kite spread adjustment. Is the goal for the Kite spread is to neutralize the Greeks? Thanks
fxo,
IMPORTANT NOTE:
I did not trade a kite spread.
I did not add a kite spread to the position.
I bought some calls so that I now own a kite spread.
Big difference. I essentially bought 3 calls instead of covering or rolling the short spread. The cost is roughly the same as covering.Had I been able to get the butterfly at a reasonable price, I would hav e preferred to do that. What is reasonable? I decided that 45 cents was as much as I wanted to pay.
Not so much to ‘neutralize’ the Greeks, but to reduce them to an acceptable level. For me, in this trade, buying 2-lots of the call was not enough. Under other circumstances, 2-lots would have been plenty.
When is it appropriate to take this expiration chance? Good luck with the RLS.
Thanks s,
In my opinion: It is never right. There is just too much to lose – but more importantly, too little to gain.
However, certain situations are tempting. I don’t hide the fact that I am human and sometimes do not make the best decisions. In this context. ‘best’ does not refer to the decision that would give the best results. I refer to the best theoretical decision.
In this trade, all options will expire worthless, costing the $1,740 I paid for the adjustment.
Mark, I refer to the RUT IC of Jul 9.
The probability of OTM of the 820 C option is appr 83%
the Kelly Formula calculation gives 5% in your favor, this is not much and it will be interesting
to follow the results in the rallying market in these days. Will you have enough credit to roll ?
This trade is for the brave. Heartbreaking for a rookie as me.
Ilan
ilango,
“Heartbreaking” and “brave” are not good words for a trader.
One of the things a winning trader has to do is to recognize that some trades win and some lose. Our job – and it is a job – is to manage the trades such that we never lose more than we can afford. WE can do that easily by controlling position size.
We can also manage our positions such that no single trade loses ‘too much’ money. That takes some skill and discipline. Do not minimize the need to manage our personality traits as well as managing the mathematics of the trade. If you are going to feel that heartbreak, that is not a good sign. WE do want to trade as if losses are bad things – we do want to do what we can to prevent losses from hurting our portfolio. But, we also want to avoid panic. We want to avoid shutting down every trade just because it has a small loss. But ‘heartbreak’? I hope that you use that work as a big exaggeration. WE cannot succeed if we feel heartbreak over a trade.
If you truly believe that this trade is for the ‘brave’ then this is not the right trade for you. Change that 83% to 90%, or even 93%. Sure, potential profits are less, but that is not so bad because your chances of avoiding an adjustment (or exit) are increased. The goal for any negative gamma trader is to find the right compromise between probability of earning a profit and the size of that potential profit.
One more point: ‘Rolling’ is not the only alternative – and there is always ‘enough’ credit to roll. However there is not always enough credit when it comes to profitability. If you have to lock in a loss to roll, that should not deter you because the goal of any adjustment is to reduce current risk. And if that removes all chance to earn a profit, the adjustment can still be a better choice for the trader than exiting with a larger loss.
Yes, I know that this trade is not for me right now but my goal is still to learn also positions which are not
yet right for me. So the important thing is to understand the rationale behind such a trade, which I think I am starting to get.
In one of your webinars few weeks ago one of experienced traders mentioned that “Rolling up seems to be the natural complement to the CTM” and
as I understood you agreed saying that rolling up brings more credit. What I do not understand is how this can bring more credit
if moving the call spread is a debit transaction. Also rolling up, rolling down, rolling over seem to me to be used in the same meaning or I am wrong. If I could participate in today’s webinar I would ask this question.
Ilan
ilango,
That is a good attitude. We all want to learn more.
By all means, do look for the rationale behind trades that are not right for you. It’s important to understand the thinking that goes into a trade decision.
However, I urge you to spend most of your time on trades that suit your current situation. This provides good experience under conditions that make it easier to manage trades and make some money. As time passes, you will expand that comfort zone. You will want to try more trade ideas. I like that you ask questions about trades that require the trader to be ‘brave’ but I hope that you never trade with that feeling.
Clarification:
a) When a condor is in trouble (let’s say it’s the call side), we roll down the calls because that is one good way to reduce risk and maintain a position that is worth owning. That part of the trade is necessary.
b) When we roll up the put portion – after rolling down the calls – that is the part that brings in extra cash. Because I consider, this portion of any adjustment to be optional, those who do roll up bring in extra cash to offset part of the cost of the call adjustment. I did not mean to suggest that the two adjustment trades provide a net cash credit. That is not going to happen.
c) I try very hard to distinguish between type of rolling, so here are my definitions:
Roll down: Move current position to one that is MORE DISTANT OTM/ This trade costs cash.
Roll up: Move current position to one that is LESS DISTANT from the current stock price.This trade nets us a cash credit.
Roll OUT: Move current position to a more distant expiration. I do not like this trade as an all-purpose solution. It is acceptable when specific conditions are met. Too many beginners make this trade in a misguided effort to prevent taking a loss. Note you can roll DOWN and OUT or UP and OUT.
Roll over: I don’t use this term, but it would probably suggest rolling out.
I hope this clarifies the terminology.
Thanks Mark, crystal clear.
Ilan
Was the nervousness in the morning due to the impending FOMC news?
Also can this page be reorganized? It has become very long and is difficult to navigate when viewing on a mobile device. Thanks.
s_
My nervousness is in my head. I am bearish, but do not want to bet on it.But, that makes me afraid of the big downside. So I made a conservative decision to get out.
Right now, I do not believe that the FED knows what it is doing (other than giving free money to the banks) or how to solve the crisis.
I will reorganize the page. Thanks for letting me know the need.
What fed action would alleviate your nervousness?
s_,
The only thing the FED could do to make me feel better is for Bernanke to resign. Other than that, I do not believe that our future depends on the FED. I believe the world has gone far to long without doing anything to fix the obvious problems. There are only two choices:
a) It’s too late and nothing can prevent the inevitable disaster
b) Politicians around the world have to face up to reality. To me this is a battle between austerity and stimulus. I believe it is an easy choice, but will remain silent because I do not want to turn this blog into a political debate.
Mark, I am referring to the July 9 Weekly IC. As I see you tried to sell the C spread leg by leg.
Is this a preferred pattern for the weeklies because its easier to get a fill or any other reason ?
However it seems very logical to do.
Ilan
ilango,
This was a VERY SPECIAL situation.
No, this is not recommended.
Look at the details: The details matter. Instead of paying 5 cents for a SPREAD, I paid 5 cents for the single option I was short. Same cost, reduced commissions. It’s all good. Even If I am unable to eventually sell the remaining long option, it’s still a better result. (and I did get to sell 5 out of 8).
Please do not ever consider doing this as a play. Too many beginners buy back their short option at a ridiculous price and then are naked long the other option. Unless some miracle happens, that option is going to expire worthless, resulting in a large loss for no reason. DO NOT do this.
Regards
Hi Mark,
For today’s trades, which side did you leg into first? How long did you wait after first fill before taking the second leg? What was the slippage on the first and second trades?
s_,
I entered both orders simultaneously. When filled on one (after 10 seconds), I immediately lowered the other by 5 cents and got filled.
I had been unable to get the fill on the condor, but when I tried both sides separately, I got my price.
My reason for trying this was becasue I thought the MMs might not want to be bothered with condors in the fast moving market.
The profit on margin should be 22% (June 26). Wish all weeks were this easy !
s_
oops. I forgot it was a 10-point spread.
What was/is your acceptable (entered) bid for the fly roll when the short is essentially ATM? This seems like a very aggressive hold. Is this based on any indicator or prognostication of the news for tomorrow/Friday (I am very scared of both).
s_,
Yes, an extremely aggressive hold. No, not based on anything other than RUT was down a whole lot more than anything else today.
I don’t really have any acceptable bid for an ATM butterfly roll. By then I would need more than 5-points of protection. So it was cover or hold at that point. Earlier I had a 35-cent bid entered. But RUT declined 9 points from there.
Sorry about the loss and thanks for posting the trades. Ugly weeks like this reinforce my belief that it is better to play it safe and cut profits than carry risky positions overnight.
I have the exact same spread for the same credit this week. Will be interesting to follow and see how I measure up. Any reason for the switch from RUT?
I entered an order for RUT and was not filled. So I tried SPX instead.
I prefer SPX, but often cannot get the trades executed.
I closed at 5cents and 30cents for the two sides. There was an order for selling 500 (five hundred)!! 1365/1370P at a nickel each that hit the exchange around 10 am CST. Depending on how tomorrow goes, we might have one less options trader in the universe soon. I was almost tempted to gamble a 100 lot by taking the opposite side.
Maybe the seller believes these options are AM settled.
Maybe he/she was selling out a long position (nah!)
I’d prefer to buy 100 rather than sell 500. I’m with you on that.
Today (8/21) when RUT = 827.
the call spread in your iron condor: 795/800P/830/835C
is too close for comfort. Therefore, you entered a bid for the call butterfly: 830/835/840.
I need to better how this works. Does it mean, you would exit the call spread for a loss then buy call butterfly with the same number of lots as the call spread that you had. In other words, because you had 10 lots of the iron condor, you exit all 10 call spreads then buy 10 lots 830/835 spread and sell 10 lots 835/840 call spread?
Wayne,
The blog post has been updated to clarify.
NO.
1) I do not own any butterfly spreads.
2) I bid to buy a butterfly spread. But the true purpose was to roll down. The order:
a) Covers the 830/835 spread
b) Substitutes a new short spread, the 835/840.
To accomplish both of those items simultaneously, the order that I entered was (coincidentally) a butterfly spread. This trade has nothing to do with butterflys. I hope you see that now. This trade would have been a ROLL DOWN, had it been filed.
EVERY TIME we make a roll down trade, it is buying a condor. Buy one spread, sell another that is farther OTM. That is a condor. This time, the two spreads had a strike in common, making the order a butterfly spread instead of a condor.
Thank you for clarifying.
Then, this is not about this current weekly trade. But for longer term trades, where you are able to farther out of the money, would you ever consider adjusting your iron condor a butterfly spread?
Example, today if you’ve got a Oct 830/835 call spread. And this comes from a roll down made earlier from a CTM iron condor where I collected over $410–after the roll down, now I have the 830/835 spread with a credit of say $170.
Would you consider adjusting this credit spread (not when RUT is already 827–that’s too late, for me–but maybe when RUT is still around 807, 809), adjust by
a. buying a butterfly spread or,
b. turning it into a butterfly spread?
With a.,
possibility 1: buy 825/830/835 or any strike closer to the money than the short call spread
possibility 2: buy butterfly with strikes farther OTM; in that way, they cost less
Or, with b, you turn the 830/835 call spread into a butterfly by buying 825/830 (equal number of lots as the short call spreads that you had)
Wayne,
I’m always happy to clear up any misunderstandings or to rectify the situation if I get careless with the way I word something.
1) As you suggested, this post, and everything in it, refers specifically to the weeklys trade made yesterday Aug 20, 2012.
2) I would NEVER consider a 5-point butterfly spread as an adjustment trade for a longer-term iron condor position – unless the underlying were priced under $50.
When trading an $800 index (RUT) or a $1,400 index (SPX), the roll-down trade is used to reduce risk. We do that by covering the spread we sold earlier because the delta of the short option has become too high for comfort. Thus, rolling down five- or 10-poins makes no sense when the delta changes very little. Those roll-down trades always move the short strike several strikes farther OTM. There is no point in buying a butterfly spread that moves our short options from a 37 delta to a 36. Most of the time, we want to move it to 10, 15, or 20-delta.
3) I would do neither of your choices.
Changing the short option to 835 instead of 830 does not help. The difference is only one-half of 1% of the underlying price. It is insignificant.
I would never convert the position to a butterfly spread because I do not like owning butterflys – unless that are very cheap. Very cheap.
If you are talking about a WIDE butterfly, where the wings are 40 or 50 points (or more) away from the center strike, that is a different story. But I know that is not what you are thinking.
4) I believe you are over-thinking the process. the plan is to reduce risk. The plan is to leave yourself with a position that you WANT TO OWN.
Why would you want to
a) Buy the butterfly, in effect rolling down by FIVE points? Is that really a different position when we are dealing with longer-term options? No. It is almost the identical position,. With Weeklys, and with just a couple of days remaining in the lifetime of the options, then 5-points makes a significant difference. You can see that difference by looking at the delta of the 830 and 835 call spreads (in this example).
b) I had hoped that you would KNOW (deep in your heart and with zero doubt) that buying a farther OTM butterfly is a poor choice. First, the only way that spread could profit is when the spread you are already short (and nowhere did you mention the possibility of covering that spread and only afterward buying the butterfly) is in the money and losing almost it’s maximum value. That would not be a risk-reducing adjustment. That would be a serious trading error.
As I said, you are looking for ideas that are not here. All I did was to suggest that I wanted to roll down by five points, but I used the word ‘butterfly’ instead of ‘roll down.’ Look what has happened. Perhaps that was the wrong word, but it should not have been. The trade to roll down 5-points is entered as a butterfly spread: Cover 10 830/835 spreads; sell 835/840 spreads.
If I had said ‘roll down’ would you have asked these questions? No way. So something encouraged you to look way beyond the trade I tried to make and discovered a whole world of possibilities. Thinking is good. Possibilities are worth discussing. But I do not understand how you got the impression that I could possibly be talking about covering all the short spreads, and on top of that, buying a butterfly).
It is very important that we have a meeting of the minds here. Are we in sync now?
Mark,
I jumped in on Tuesday with an SPX IC P:1395/1390 C:1430/1435 for $.80 when SPX was 1416. I bought it back for $.40 today (Thursday) when SPX was about 1408. I thought this was pretty good. I usually try to wait to get a better price and it often goes against me so this time I took a lower but more likely profit.
Bill,
We may have a preferred premium to pay when exiting – but market conditions can change that. If those puts made you nervous, then 40 cents is a pretty cheap exit.
Very aggressive choice to hold. Which SPX option expires in the a.m. tomorrow? My SPXW is pm expiration.
s_
I believe I made a rookie error. Or perhaps I had a ‘senior moment.’
This is not the 3rd Friday, so all options are PM settled. I had it firmly in my mind – when I made the trade – that I had chosen AM settled options.
Oops.
Yes. I agreed with you Mark that 1 was too much to pay. I actually choose to roll it to 1485/1480. I felt as though that was safer for.me and it only cost me $.30. I know that it is only 5 points but it made me feel much safer. I did have a standing order yesterday to close the call spread at .20 yesterday which got filled yesterday afternoon. That made me very happy.
1385 that is.
Matt,
Corrected noted. I agree that 5 points is not much, but for 30 cents you would have a decent amount of overnight protect. Not enough if ‘Jackson Hole’ news leaked and we learned that Bernanke had a negative surprise announcement…but good enough for most usual situations.
I plan to exit right after the opening. Being lucky is fine once in a while, but we should not come to depend on that.
Yes, I believe that you are correct. As you always teach, it certainly made me feel much more comfortable. Just out of curiosity, considering that these are PM settled do you still feel like the $1.00 at the end of close yesterday was artificially high? The reason that I ask is because I have been trading the SPX weeklies for a while now, I commented on it once before, but seems that often times the prices stay very high for a while. Meaning that I think that on a 5 point spread with the short delta at ~.30 like it was yesterday it always seems to sit around $1 right up until expiration day.
Matt,
No. $1 was not a bad price. Had I not been asleep at the switch,I would have been biding to cover during the day.I don’t know if I would have been enough, but I would have had a chance.
Options that are not too far OTM retain value. Yes, the premium does sharing – but we are dealing with spreads. That premium disappears far more slowly because it only the difference in theta that we collect.
Your point is one reason why I often mention the idea of entering Tuesday instead of Monday. We have to do that next week because the markets are closed Monday.
Mark,
I’ll throw a suggestion out there, not sure if it will make sense, Would it be possible to have each week trades on a separate page, much like the “Trades we are following” style? I only ask this because I think it would be easier to follow the comments related to each trade if they were separated from the rest. This would only work, of course, if each page can have its own set of comments.This page is already marking 102 comments that are now disconnected from the trade that inspired them.
Thanks!
Sharp,
I like the idea and tried to do it once before. The problem is that I will soon have too many pages.
However, I will do what I can. See the new setup.
Thanks for the suggestion