120910 Weeklys Trade

Sep 10, 2012

8:35 am; RUT = 841.28; RVX = 19.58.

Not going to push too hard.
Entered order to buy 9-lots of the RUT iron condor, seeking a credit of 75 cents.
No fill yet.

815/820P; 860/865C

9:41 filled.

Risk assessment:
9:54 am.
Short put delta: 15
Short call delta 10

Sep 10 RUT IC; 10:00 am

3:06 pm; RUT = 839.37;

Long 14 delta. Not a risk issue. No adjustment needed for any iron condor trader.

Not mentioned earlier: I prefer to trader 10-lots, but losing last week reduces that to 9 this week.

Sep 11

8:35 a.
RUT = 840
Long 15 delta.

Risk assessment: Under control. Essentially neutral. No action required.

RUT = 841. Position is +7 delta.
I would consider closing at 40 cents, but the current bid is $0.40 and the offer is $1.00.

My plan is to enter an order to exit tomorrow, bidding 30 to 35 cents.

Sep 12

7:13 am

With news this morning (German court backs Merkel), and more due tomorrow: from the Associated Press: ” many expect the Fed [tomorrow] to unleash its most potent weapon: a third round of bond purchases meant to ease long-term interest rates and spur borrowing and spending…” it is time to exit this week’s trade.

No bid yet. Let’s see where the market opens.

8:33 am; RUT = 844.28
Bidding 35 cents for the iron condor. The market looks good for this trade, but with news pending, I think it is better to get out of the market for the rest of this week. No urgency, but today is a good exit day.

2:20 pm

RUT = 841.98
Short deltas are 7 and 8.
Position looks perfect.

I want to exit, but the FED announcement is not until tomorrow afternoon.

As a compromise, I raised bid to 40 cents.


Cancelled bid.

Instead am bidding 5 cents for puts, willing to go all the way to 15 cents (the offer) if necessary)
I am also bidding 20 cents for the calls (40 cent offer). If I get these, will pay higher for the puts.

I’d like to pay 35 cents total.


No fills

Risk assessment: It seems that the major risk (other than traditional overnight risk) comes from the FED meeting tomorrow afternoon. It will not be cheap to exit early, but that is my target. I can afford to take a small profit this time – just to avoid the big loss.

Sep 13

8:35 am
RUT is trading near 844.
That means the 860 call is 16 points, or almost 2% OTM
That means the 820 put is 24 points, or almost 3% OTM

Yet, the options carry a delta of ~9, telling us that there is a one in eleven statistical chance that either of these options will finish ITM. Why so high? Because the implied volatility is 67 (puts) and 52 (calls). These are extraordinary numbers for an index that has been so non-volatile.

However, news is pending. The Bernank decides whether we will see another round of quantitative easing. And that decision is expected to result in market volatility.

So here we are, faced with a decision: Do we pay far too much (based on statistical probability) to cover our short positions, or do we pay what the market considers to be a fair price (based on that pending news)?

My gut says to hold. Once the news comes out, IV will get crushed – and if (always a big if) the immediate move is not too large, we will be able to exit at a very nice price. On the other hand,the potential loss is far greater than the potential gain, and it is possible that the immediate move will be very large.

All of this discussion leads us to one conclusion: Trading iron condors is best-suited for markets when no special news is due to be released. Under those conditions, we only have to deal with statistics and manipulation.

8:41 am
RUT = 843.21; IV = 61 and 54.

Bidding 10 cents for puts; 15 cents for calls; 35 cents for the iron condor.
No takers. The simple fact is that no one is going to sell cheap stuff into the news.

So do we hold or do we cover? This is an individual decision. I do want to cover, but there has to be a limit o what I am willing to pay.

9:29 am.
So far, nothing done.
Taking a break for exercise.

10:31 am.
RUT =844.30
Options are still priced for a gap move.


I thought this opinion from TheStreet.com may be of interest.I do not trade gold. I list thus URL as an opinion piece on owning an iron condor RIGHT NOW – prior to the news release.

11:06 am

A trader is supposed to watch the markets – especially when that is his/her primary income source. It a job. For me it is less than I job. I have too mush else to do. Yet this is taking my focus this morning. I resent that need to watch when I KNOW nothing is going to happen until after the FED announcement.

As I was writing that paragraph, I heard the computer alert. I covered the iron condor by paying 35 cents. I consider that to be an expensive insurance policy. But – I am happy to be out. The overall goal is to survive and prosper. It is not to earn the maximum from each trade.

Profit = $400, less commissions
Track Record

12:09 pm
RUT = 854.41

Regardless of where this market goes, I feel better not holding the iron condor trade.

14 Responses to “120910 Weeklys Trade”

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