A Real -Time Trade

Here’s
a (very small) trade I just made.  Note
this is not a recommendation, just something to think about.

Bought
RUT Nov 620/630; 810/820 Iron condor for a cash credit of $3.15.

RUT is currently trading near 738

Maximum profit is $315

Maximum loss is $685

Plan: To hold about two months and close when these
become the front-month options.  In
reality, I expect to hold up to two weeks longer.

Sold the Nov 620/630 put spread @ $1.21

Sold the Nov 810/820 call spread @ $1.94

Delta: Nov 630 put has a delta of -13; the Nov 810
call has a delta of 21.

Note
that is position is not delta neutral.  I
have a large portfolio of positions, so adding this one to the mix is suitable
for me.  That does not mean it is
suitable for you.

73


11 Responses to A Real -Time Trade

  1. Roland 08/28/2008 at 11:31 AM #

    Do you purchase each leg separately when doing ICs?

  2. Mark 08/28/2008 at 11:35 AM #

    Rarely.
    I enter my order as an iron condor.
    Mark

  3. NG 08/28/2008 at 7:27 PM #

    AN EXCELLENT DISCUSSION SO FAR ON IRON CONDOR.
    KINDLY POST ALL THE DETAILS OF YOUR RUT NOV620/630;810/820.TRADE.
    SINCE I AM GOING FOLLOW THIS TRADE EVERY DAY IN
    AN EXCEL SPREAD SHET,
    I NEED TO KNOW ALL 4 EXACT BUY/SELL PREMIUMS.
    YOU SAY RUT=738.
    I JUST CHECKED THE CLOSING PRICE OF RUT ON
    27 AUG =732.95.
    PLEASE CLARIFY.
    THANKS

  4. Mark 08/28/2008 at 8:36 PM #

    NG,
    1)Please don’t yell at me (all caps is yelling) again.
    2) I don’t know where you found your prices, but you are using bad data. RUT closed near 748 and was 738 when I made the trade.
    3) You do NOT need the individual prices. All you need is the total credit for the iron condor.
    Please be certain you figure out for yourself why that is true.
    Prices: Calls: 8.37 and 6.43. Puts: 7.73 and 6.52
    4) Following this spread every day is foolish, IMHO. This is a November position.
    5)If you have trouble finding the real closing price of RUT, it’s going to be impossible for you to find the real closing prices of the four options.
    Mark

  5. TR 08/30/2008 at 7:18 AM #

    Mark
    This blog is excellent. I am still learning a lot.
    Can you comment on the reason you chose your strike prices on this trade? looks like your short call was 70 dollars OTM and your short put is 110 OTM. I would have expected the calls and puts to be roughly the same distance from the current stock price.
    I know you mentioned the part about delta -13. was you decision on the strike prices solely because you were positive delta on the rest of your portfolio? Did it have anything to be with te fact that markets tend to drop much faster than they rise?
    Rgds
    TR

  6. Mark 08/30/2008 at 11:51 AM #

    TR,
    Very good point.
    Perhaps this was a poor choice of trades to use for illustrative purposes. Being closer to neutral would have been more desirable. But…
    I must admit that I am more concerned about a market debacle than a large, rapid upwards move. In theory, I should not open positions based on that fear because I know I cannot predict direction. Nevertheless, my comfort zone is satisfied more easily with a slightly bearish bias for my iron condor portfolio.
    Most investors prefer a bullish bias when investing, and I certainly don’t want to suggest that others follow my example. That’s another reason why it’s difficult to post a real trade.
    So far the reaction to the posed trade is positive, and I may do it again in due course. Hopefully with a more neutral trade.
    Mark

  7. TR 09/02/2008 at 2:41 PM #

    Mark
    Thanks for your reply. As is often the case, your great responses cause me to think and I end up with more questions….
    So my next question is this…Given the fact that markets do decline faster than then they rise (not certain if this is a fact but I think I have heard this from you and others), is it prudent for a IC trader who is truly ambivalent about market direction to choose strikes such that the short put is further OTM than the short call. I have a friend who is currently using a strategy of selling IC ‘s with the short put 2 standard deviations OTM and the short call 1 standard deviation OTM (his reasoning for this is that “markets fall faster than they rise”)
    I would love to hear your thoughts on this.
    Rgds
    TR

  8. Mark 09/02/2008 at 11:28 PM #

    Sure it’s both reasonable and prudent. If it allows you to trade within your comfort zone and if prudence tells you the risk is reasonable, then there’s nothing wrong with that idea.
    So much of trading is not ‘right’ or ‘wrong’ – although some ideas have little merit. Remember, this is not a pure science and that there’s plenty of art involved. A trader can find his/her own path to success.
    If you go against the probabilities, you may not succeed. If you take too much risk, you are unlikely to succeed, but if collecting a bit less cash from the put side of an iron condor feels right to you, there’s no reason not to trade that way.
    Neutral does not have to mean delta neutral. There are other definitions. Perhaps you want to be ‘fear neutral’ – or equally concerned about the calls and puts moving into the money.
    Mark

  9. TR 09/07/2008 at 6:57 AM #

    Hi Mark
    Thanks for your reply. This is helpful, and just to make sure I am understanding you correctly you I want to clarify my thoughts and get your feedback.
    1) I am a beleiver that I can not predict which way and how much the market is going to move, or how much it will fluctuate in any given time frame (this is my base assumption on which I want to do my trading)
    2) I also beleive that in the LONG TERM, markets go up by about 10-11% a year or roughly 1% a month.
    3) Given point 1) and 2) , my initial thoughts were that I should buy iron condors with the short options equidistant from the money, or perhaps even push the call spread slightly further OTM, than the put spread.
    4) Now add to the mix a “fact” that markets often drop much faster than they rise because when bad news happens buyers disappear.
    So my question is… if i am truly ambivalent on market direction (clearly I am NOT bearish, I just don’t know), should I push out my put spread a bit further OTM than my call spread (to accomadate point 4))? Or would you say that doing this will be inconsistent with point 1) and if I push out my put spread I am taking a bearish view ?
    Thanks for your thoughts on this. I hope I am not belabouring the discussion. I just want to make sure I clearly understand how I should trade to match my own beleifs.
    Rgds
    TR

  10. Mark 09/07/2008 at 1:18 PM #

    I don’t know what you ‘should’ do.
    You have a slightly bullish bias and a fear of being short put spreads.
    I don’t believe there is a ‘best’ solution. How about this: Decide which is more important to you:
    a) Safety first. In other words, is earning a profit, even if less than it might be, your primary goal?
    If ‘yes’ sell puts that are further OTM for the bit of extra safety that provides (it’s not much safety, but every once in awhile moving down a strike or two becomes the winning decision).
    b) Profits first. Then trade neutral. That can be a) distance neutral; b) delta neutral; c) dollar neutral (equal cash from call and put spread).
    There’s more than one way to be neutral.
    Bottom line: After you gain more experience, you will know – when it’s time to buy the new iron condor – which style fits your comfort zone better. To me, your uncertainty relates to finding a comfort zone, not in picking a trading strategy.
    Mark

  11. TR 09/07/2008 at 5:43 PM #

    Mark
    Thank you. This is good advice and you’ve given me more to think about. I really appreciate it.
    TR