Updates on April trades - IWM

Written on April 8, 2008 by OptionsRopeaDope

Ive been slack on posting, but in the meantime have closed most of my trades. Up first, I closed the IWM condor today for a very modest profit. Here was the risk graph -

I did not close the adjustment (the May 74 call) simply because I finally got my fill right at the end of the day. With those calls, I have a small loss - about 3% of the capital I had applied to this trade. For that, I am very, very happy. I decided to close because I was at my worst case scenario with IWM hovering at 70+. My deltas were starting to skew negative, and with a small increase in price I risked a substantial loss. The delta of the 73 call is 25, which is too high a chance for me right now. IWM moves 2+ points several times a month, and this market is showing some unusual short term strength. I wouldn’t try to stand in the way of a rise, cause there’s a good chance of getting my hand cut off.

After setting the adjustment in place, I also regulary rolled up the put wing for additional premium, until I worked up a total credit of .45. I closed the condors today for .44, giving a small credit that might have covered the commissions, but probably not

To review the course of the trade, the adjustment worked as it should, even though I should have puchased a few more, but I didn’t calculate the deltas I was buyingquite right. The result of this was that my risk graph still sagged a bit on the upside, which was not worth the slight profitable hump I had to the downside. I was buying peace of mind, and I only got about 90% of it.

Also, this adjustment counts on the underlying moving, not staying right on the problem area. If the deltas drop below 15, you take it off - if it keeps rising, it starts turning positive. By staying very near the wing, theta starts working against you heavily once the volatility dies down, and the risk profile starts to warp, leading to bigger losses if the underlying decides to move again.

In that case, you can move the other wing closer (which I did), but I also remind myself I got in this situation to begin with becasue I rolled the call side down If I had not done so, this condor would be a great 8-10% profit.  This condor tarted out with wings at 55-57, and 77-79! At close, they are at 64-66 and 73-75. I’ll take break even without complaints though. An expensive education, but invaluable experience nonetheless.

Popularity: 4% [?]

If you enjoyed this post, make sure you subscribe to my RSS feed!

Other posts like this one:

Posted in Real Trades, Iron Condors, IWM