Sitck to the plan

Written on May 7, 2008 by OptionsRopeaDope

Yesterday morning the market opened lower, and when I went to look at my positions, I noticed my SPY Iron Condor Calls were at about break even since the time I opened the trade, which means they had about 6% of my total margin still locked up, ready to be released before expiration. A nice development, considering that they have been underwater for most of that time, with the short call’s delta exceeding 20 very briefly, almost forcing an adjustment.

I already closed the put wings, after rolling them up once, and had already cleared 8% total on the trade, just from the puts. 8% was also my profit target for the whole trade. But what to do now, when I had the opportunity to exceed that, and for quite a bit of real dollars? Take the profit now, and leave some potential porfit on the table, or roll the dice to squeeze it and increase my profit by 50%+? (that is, from 8% to 12%+)

Thinking it through, several words of wisdom I’ve read came to me, including, “always leave money on the table.” “Stick to your plan.” And more. And looking at the greeks, they were ok, but delta has very negative, and any upward movement would tear therough the profit quickly. It was a struggle for a couple of minutes, but I decided I had to be discipined with the trade. I closed it, and ended up with an 8.5% profit on the capital invested in that condor, which I opened April 11 (25 days). No regrets. No Coulda Woulda Shoulda.

Good thing too. In what might have been a first, I executed at the low for the day. The rest of the morning, the S&P screamed up. By the end of the day, if I had stayed in trying to squeeze more profit out, I would have ended up watching most of it go bye-bye. I often learn from my mistakes (and I’ve made many), but in this case, I really want to internalize this success. You read and hear it over and over from successful trades - develop discipline, stick with the plan - and it is scenarios like this when it pays off. It’s a nice feeling when Half of my capital is out of the market, waiting on the next entry (which will be in about a week) and larger than it was before.

Enough of that - here’s my other current positions. I added a new metric, the impact of a 1 day, 1 StdDev move:

SPX Double Diag - 1335 May/ 1315 June Puts, 1425 May/1455 June Calls 

Delta/Theta = -.35

1 Std Dev Move impact (8.1 points) = -20%

This trade is frustrating - it has hovered around break even, or down1-2%, since I opened it. Despite the Delta/Theta, I’m seeing none of the Theta come back to me. And the vega drop has hurt, as the profit curve at expiration has a deep sag in it now. The upward move over the last few days took a little off, and exposed me to some minimal deltas, but it also put me in a a more profitable expiration place, go figure. This has got to give up the goods in the next 10 days, it has no where else to go.

RTH Calendar - 95 May/June Puts 

Delta/Theta = 1.34

1 Std Dev Move impact (1.27 points) = -16% (50%!)

Little movement, and I’m up 11% on this trade, with lots of potential. The numbers in parenthesis are calculations considering my break even as my max loss. Don’t know if it helps looking at it that way. It does tell me my Vega exposure is bigger than it first appeared. The Deta and Gamma risk I can adjust off easily though.

EEM Double Calendar - 145/150 May/June Calls 

Delta/Theta = -.40

1 Std Dev Move impact (1.98 points) = -10.6%

The adjustment to a double calendar was just in time. I almost had to adjust again yesterday (my next upward adjustment is between 150 and break even (about 153)) but waited it out, and EEM dropped back under 150 today. Still down about 8% right now, but I’m in pretty good shape. Each day now, the I’m making a 2-3%, probably beacause of theta if nothing else. A little volatility spike would be nice right now.

Overall, looking good.

If you don’t know what is up with these numbers, read this about how I look at greeks.

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Posted in Real Trades, Trading Rules, Calendars, Double Diagonals, SPX, EEM, RTH