Mark To Market Rules

Here we are in the midst of a huge rally, and I'm not happy with my iron condor positions.

Playing conservatively, I've already closed 1/3 of my RUT 460/470 call spreads.

I own extra calls, but they are not enough to offset pending risk, and market volatility.   As my account is losing value, I'm rolling some short call spreads to higher strikes.  Moved the RUT May 460/470 spread to 520/530 and moved some Jun 460/470 spreads to 530/540.

I did not sell extra call spreads.  Not happy, but I must do what I must do and my comfort zone had definitely been violated.  Feel better now.

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I just don't understand this whole process.  The banks – which would be officially insolvent if they had to mark their toxic assets to the current market – have been given a reprieve by the FASB (Financial Accounting Standards Board).  But, IMHO, they are still insolvent.  So why the rally?  These banks are not going to begin lending money to each other – because they know each other bank is also insolvent.  So how does this MTM rules change help anyone?  And nothing has been done to encourage banks to begin lending again. 

Naive me thought that the whole idea to salvage our economy was to encourage banks to lend to small business and individuals.  I guess the idea was really to do anything to prevent the banks from doing what you and I and each trader must do – and that's recognize the true value of our positions on a daily basis.

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4 Responses to Mark To Market Rules

  1. Likewise, I’ve been trying to douse the fires this morning but ultimately watching this thing melt upwards. Have bought calls to help ease the pain, but ultimately not too happy.

  2. Mark Wolfinger 04/02/2009 at 12:13 PM #

    We can always be long, but over the longer term I prefer to manage an iron condor portfolio. I am not selling any new put spreads as I moe my call spreads to higher strikes.
    Good luck to all of us!

  3. Hi Mark
    Rut now is 452. To me too near my JUN IC 460/470/290/300 (credit 4$).
    I got to do something, but what?
    Repurchase the hole IC is aprox 5,38 (so cost 1,38)
    IN your opinion which would be the best to sell the calls and buy JUN 500/510 for example? or should I sell the puts too, closing the hole IC. In that case I soppose I should find puts more close like 360/350 for example?
    Whith this IC I´d be paid aprox 5$, so I wuold earn 3,6aprox
    THKS

  4. Mark Wolfinger 04/02/2009 at 2:16 PM #

    Sorry you are in same boat as me. I closed a portion of my Jun 460/470 spread also. And I did substantially as you suggest.
    Although I always ignore the original premium, it’s human nature not to do so.
    a) If you decide to close the call spread, it safest to also bid to buy back those puts.
    b) What I did is to roll down the call position. I bought a portion of my 460/470 spread and simultaneously (by entering a 4-way spread order) sold an equal number of Jun 530/540 spreads. I paid 2.60 for some, and 2.85 for more. That would leave you more comfortably placed, and still have a chance to profit.
    There’s nothing special about the 530/540 spread. It just suited me. Choose any that suits you.
    c) There’s something else you can do, but I decided not to do it myself. I just cannot stand getting whipsawed (again). But you can buy back your put spread and sell another put spread [sell fewer if you dare do this] at higher strikes. That brings in more cash and makes your position more market neutral. But a strong reversal will hurt.
    I am not recommending the put idea, but I obviously like the call trade. I want to be certain you consider this idea and then decide for yourself.