Recent Iron Condor Trading Activity

Iron condor traders have faced some interesting decisions as the market continues to rally.  Those who adopted very bullish stances have fared well.  Those who trade market neutral iron condors have faced adjustment decisions.

I understand that my personal trading results differ from yours, however we may have faced similar decisions.  This is how I'm currently situated.

I own RUT iron condor positions with Nov and Dec expirations.  I own a very small January position because I decided to save my free margin for position adjustment, rather than for making new trades.

Each trade was initiated with a minimum premium of $300.

a) I bought all of my Nov put spreads when they became available at $0.15 and $0.20 per spread

b) I've already covered some Dec put spreads at the same prices

c) Not predicting, but fearing a large market selloff, I did not open fresh put spreads when covering those cheapies.  In retrospect, that has cost real cash, but it's not my style to sell new spreads when covering the original trades.

This (idiosyncrasy?) violates the principle of remaining delta neutral.  Thus, I have been trading with short delta as the market has been rising.  To avoid large losses in the rising market, it's necessary to stay ahead of the game and adjust positions.  In some situations, it pays to exit the trade and take the loss as the adjustment.

d) Thus, the bulk of my activity has been concentrated on protecting my call spreads.

Here are two sample (the volume mentioned below represents the lowest common denominator, not the actual trade volume) trades:

i.  Kite spreads. Here is one example

Buy one Nov 710 call; sell three 740/750 call spreads

This provides a much better upside, if the market surges.  It adds current + delta and gamma.  That's all good.  However, if the whole position is held into expiration week, the negative gamma becomes worse near RUT 740. 

This type of kite allows for the sale of four 740/750 spreads, but I'm selling only three to reduce risk

This trade was made when RUT was near 690

ii. Buy one Dec 730/740 call spread;  Sell two Dec 760/770 call spreads.  Traded when RUT was near 710

This type of trade is not appropriate for all.  It works under two conditions.  The first condition is that your account is not already exposed to major risk.  By that I mean that current risk – before and after the above trade is made – is within your comfort zone.

It is a poor risk management technique to convince yourself that although the 730 strike appears to be vulnerable – that 'surely the 760's are safe.'   When the market moves as it has been moving, you never know how far the move may extend.  There is no sense making predictions. 

Because I have extra room (by choosing not to open January positions), I'm using some of that extra margin (and risk) availability to make this trade.

Iron condor traders may choose among many types of trades to reduce risk,  Tomorrow I'll discuss some possibilities.

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