A Little Bit Sloppy

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.


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