Geithner Is Volatile

The first time Treasury secretary Tim Geithner spoke, the markets were very disappointed by the lack of detail in his presentation and while he was speaking, the market tumbled several hundred points.

Today, he announced the latest details about the bailout package,which could rid U.S. bank balance sheets of up to $1 trillion of bad assets. The highlight of the program is the generous financing offered by the government to persuade private investors to participate. This time Wall Street liked what it heard and the the Dow Jones Industrial Average was higher by almost 500 points.

Here's my conclusion (based on only two data points):  Iron condor traders do not like Timothy Geithner.  With two speeches, the market has given him one thumbs up and one thumbs down.  Iron condor traders offer two thumbs down.  Way down.

Thumbs-down

This was not a fun day for me.  I did get to cover two different $RUT May put spreads when they reached prices low enough to cover.  But my call positions were in trouble.

I was short the May 430/440 call spread and I bought all of them (using the 3 stage process described earlier), beginning when RUT traded above 420 and ending when RUT reached 430.  In their place, I sold May 480/490 spreads – but sold no extra spreads.  I paid cash to roll down the position.

Adjusting risk is a necessary part of the game when trading iron condor positions, but that doesn't mean it's fun.

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4 Responses to Geithner Is Volatile

  1. Income Trader 03/24/2009 at 7:04 AM #

    Hey Mark,
    Was in the same boat yesterday with a very similar position…handled much the same way. I agree Geithner is not good for us IC guys and gals. Your adjustment ideas and commentary are timely these days.

  2. Mark Wolfinger 03/24/2009 at 7:21 AM #

    Big boat – I didn’t see you.
    Glad to help. I’m sure you know (but for others), my trades are merely what I do. There are several reasonable alternatives.
    Better luck today.

  3. Gil 03/24/2009 at 9:07 AM #

    Mark,
    On the boat too…. but still is:
    After an extreme days like yesterday, and the previous Geithner speech, some reversal is predicted and indeed happaned in both cases.
    1) Would not it be cheaper to wait at least extra day for this reveral before adjusting (since you (means we) in a trouble anyway, this delay will not burn you significantly more)?
    2) You’ve mentioned rolling roll down. Would not it be a rollup, since you go for a higher price call?
    Gil

  4. Mark Wolfinger 03/24/2009 at 9:24 AM #

    Nomenclature: The options world does not always agree on everything: e.g., buy iron condor vs. sell iron condor.
    Yes, rolling up makes sense because I rolled to a higher strike. But that would mean a similar transaction in puts would have to be called ‘rolling down.’
    To me, it’s rolling down because all option data has lower strike prices at top and higher strike prices on bottom. When I look at the list, the new strike prices are lower (hence down).
    But, by using the term ‘down’ to mean further OTM, puts and calls have the same terminology. That’s a plus.
    When covering call spreads that are approximately ATM, the value doesn’t change all that rapidly as the underlying moves. So my May and Jun spreads will only cost a few extra dimes if I wait and the market rallies. That’s true.
    I’m thrilled to see some reversal this morning, and I have already adjusted more positions (440/450 C spreads). I just don’t play for the reversal – even though it may be likely. I’d rather feel safe. If it costs me an extra $1,000 to feel better, I’ll pay it. Sure, I don’t want to toss that cash aside, but I consider it insurance. If the market declines, I’ll recover my losses. But, if the reversal ends, it’s important that future losses be trimmed.
    I don’t get the rally. To me everything still looks bad. But I remember 1982 and how stubborn I was. Stayed short until I ran out of money. Cannot do that again.