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.

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.