These are certainly turbulent times for the stock market. And as a premium seller (buyer of iron condors), this is type of market that usually results in losses. But, I've been lucky because I followed the insurance-buying philosophy described in The Rookie's Guide to Options.
Yesterday was a very busy day. As the DJIA rose by 300 points I was selling a few call spreads to replace the call spreads I had covered earlier, as they reached my buy-in level (I recommend covering short call spreads and short put spreads when they get 'cheap enough' for you. My threshold is that I bid one penny for every trading day remaining before the options expire – with an upper limit of 35 cents – ok, I pay 40 cents when there are 10 weeks remaining).
I never did sell enough – isn't that always the case?
When the market had reversed direction and was tumbling at the end of the day – to finish down 157 points – I was busy managing my put spreads. Because I owned all those extra puts, I was in no financial trouble, but I still believe in managing iron condors as if I held no protection.
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Because I own naked long puts, I have the luxury of not closing those in the money iron condors.* I can roll (close current position and open another) them to a lower strike or to an outer month. I am fully protected from any major downside move. At least for now.
*Addendum: Not covering ITM spreads is a bad idea. Don't allow owning protection blind you to the risk.
Bottom line – I was busy with my portfolio consisting of many iron condors and neglected the small November iron condor position that has been discussed in this blog. I now find that both the short and long puts are in the money. Not a good situation. If any readers copied that trade (despite my suggestion not to do so), I hope you took action.
My plan is to cover and take the loss. If we gap down significantly, I may hold for awhile. I don't believe it's a good idea to pay $7 to cover a 10-point spread when the markets are so volatile (the spread can easily move out of the money in a day or two and the worst than can happen is that is moves closer to $10. The risk/reward odds favor holding – at least for now).
If I can pay a little above $5 for the puts spread, then I will close the iron condor and report the trade. If the market gaps higher (now there's an unlikely dream) I will look to cover at a good price, even if the iron condor temporarily looks 'safe.' The bottom line is that I simply forgot this position and will take care of it when I can. There's lots of other stuff going on.
NOTE: If I had recommended to readers that they make the trade, I would have been watching more closely. (Another reason why I prefer not to mention specific trades.) Nevertheless, I admit to being sloppy yesterday, by neglecting this position.