Patience proved to be smart this week as my DIA & SPY iron condors went ITM on the call side. With the VIX nearing 3 year lows, option premiums are sparse. March 17 & 18th I looked into adjusting both those positions. There was just not a trade out there that I liked. There is no premium to sell and I would have only been able to sell calls $1 higher than where my shorts are now. So with the markets extended, and the weekend approaching, I decided to wait. Today’s sell-off is just what my overall position needed as price slid a bit closer to the center of my risk graph. Pictured below is my DIA iron condor as of the close today.

There is a very high probability that this trade will need an adjustment but for now it does not look too bad.

There is a very high probability that this trade will need an adjustment but for now it does not look too bad.

The next picture is my overall position as of the close today:

These trades have all been open for nearly 2 weeks. Notice how the white line is starting to rise. As time marches on and implied volatility shrinks, my position is becoming profitable. The DIA is the product highlighted on this risk graph, but it is the same for the other products as well. Just the price on the bottom horizontal axis would change as I enter a new symbol. The Diamonds closed today at $107.34 and my short call is $108. A 2-3 point sell-off would put me exactly where I want to be in the profit picture. Time will tell, there are 28 days until April expiration.

Monday, the EEM will have May options available to trade. I will start looking at double calendars in that product and will hopefully find a trade I like early in the week. It will be interesting to see how a 4th trade will impact the risk graph. If I place a trade which fills, I will post a before & after risk graph in my journal.

Tuesday March 9, 2010

Today I have decided to be a bit more conservative with my iron condors.  With the SPY approaching yearly highs I have decided the calls need to be higher, further OTM.  This will mean less premium, but perhaps a bit more protection.  However, should the trade need adjusting, I feel confident about the moves to make.  So with that I am moving the calls to 117/119 and the puts down to 108/106.  Routed and filled for a 74 cent credit.

The DIA calls will be the same 108/110 but I am bringing the puts up to 101/99.  Routed and filled for a 76 cent credit.

Since neither iron condor was filled yesterday, I decided to re-evaluate and re-route.  This is planning my trade and trading my plan.  I like these new trades.  I received a little less premium but have more room for the market to rally.

Going forward, I will monitor the markets a couple of times intraday.  The only concern I would be if the markets were to rally significantly.  A big drop does not hurt my iron condors, but the IWM double calendar most likely would need an adjustment.   After the close, I will look at the overall and individual risk graphs.  Going forward there will not be much to do but wait.

Monday March 8, 2010

The markets are open I have my trading platform loaded.  I see a myriad of flashing green and red lights on my screen.  I must say I am a bit uneasy but I am moving forward.  This is another test for me in the process of getting out and staying out of my comfort zone.  Today is the first day I am going to start building my April portfolio. I am looking at an option chain of the SPY.  The spreads are tight.  Looking at the April options, there are 39 DTE.  The daily price chart shows we are close to a yearly high.  I want to keep the call side of the trade closer to the current price, thinking the prior high will be a significant resistance point.  With that I routed the 116/118, 109/107 for 94 cents, 2 pennies better than the mid.  The 116 is a bit close to current price but I like the credit and feel the prior high could be significant.

The DIA has a similar pattern.  Think I will be a bit more cautious and route calls a higher than resistance. With the Diamonds trading around 106.32,  I routed the 108/110, 100/98 for 84 cents.  A bit higher than the mid, but I am not in a big rush to get a fill.  I want premium.   I am looking to sell a call for as much premium as I can get but I am also looking at the probability of expiring.  What this means is simply what percent chance does this option have of expiring in the money.  I want as low a probability as I can get while still getting some premium for the option.  I am looking for 90 cents for the iron condor but I am not going to get it.

The EEM is a product I want to trade double calendars.  There are no May options yet so I am going to wait until March expiration.

The IWM is at yearly highs.  I have decided to do a double calendar on this product.  This is simply an out-of-the money (OTM) call and put calendar routed as a single trade.  Like the DIA & SPY, I am a bit concerned about this big advance and feel we are due for a pullback.  Looking at April/May options I like the risk graph of the 65 put and 68 call double calendar.  This trade was routed for a debit of $1.49, again a few cents better than the mid price.

I left around noon for the day.  I was filled on the IWM double calendar while the other iron condors were still working.  The image below is the risk graph of the trade.  The vertical axis is profit/loss; the horizontal axis is the price.  The curved red line is the profit/loss of the trade at April expiration.  The white curved line is the profit/loss today (March 9); the vertical red dotted line is the closing price of the IWM.  The trade is already slightly profitable, which is not usually the case.  The IWM has really tight bid/ask spreads on its options and I was aggressive on my entry price.  That has helped me already in the trade.

Sunday March 7, 2010

This following is going to be a journal of my newest venture, iron condor and double calendar option trading.  A few years ago, I took a course called “Become a Hands-Off Millionaire” It taught trading iron condors on the SPX & RUT indices.

I had some success trading irons, but also took two substantial losses.  Part of it was my fault, in reality it was entirely my fault.  However looking back, I had NO business trading those products.  This new journey is a result of me taking yet another trading course.  The idea behind these strategies is to capture the time decay of option premium.  The objectives are to manage risk and trade my plan.

The products I will be trading are liquid, have tight bid/ask spreads and are heavily traded.  These are the DIA, EEM, IWM & SPY.  Trades will be initiated 30-40 days prior to expiration.  Trades will be managed and adjusted as required.  I will start out with 1-2 contracts in each product.  Paper trading is an option but I believe that by having real positions, it will keep me involved and I will learn more too. I will probably sell iron condors in a couple and buy double calendars in the others.

In the previous course we were taught to route the iron condors as individual spreads.  Today, I am routing as iron condors.  I was always petrified that the index would move dramatically against both of my short strikes.  If it did (and believe me IT DID) there was no adjustment taught, we were told to get out.  We of course were told that we could “negotiate” price.  Well I have found about 90% of the time the only way I could “haggle” was if the underlying moved causing the option prices to go in my favor.

Today, there are 40 days to expiration (DTE) for April options.  I will route trades a bit better than the mid.  It is not imperative that I get filled this instant.  I get my price or I re-evaluate and re-route tomorrow.