Position Update Sep 25, 2008

I've opened two positions for discussion purposes only.The first is an experimental iron condor.  The idea was to hold for two weeks (that's tomorrow) or perhaps a day or two longer; take a quick profit near 15% of the margin requirement, and close the position to eliminate all remaining risk.

The second is a longer-term (12 week) iron condor.  This position has been held for four weeks.

October iron condor:

RUT was 723. Sold the Oct 650/660 put; 780/790 iron condor @ $2.95.  Goal: Cover by paying $1.90, on 9/26/2008 

Today RUT is 707 (11:15 AM CDT). With IV much higher now (RVX = 37), this iron condor is priced much higher than I had hoped.  The mid-point between the bid and ask is currently $2.85.  The passage of time has helped, but the premium is too high.  Decision: Hold.  I could take a tiny profit to eliminate risk, but with both short options being 60 points out of the money, I believe this position is worth holding.  But, I will be checking every day for an opportunity to exit the trade.


November iron condor
:


RUT was 738. Bought
RUT Nov 620/630; 810/820 iron condor @ $3.15 credit.

With RUT near 707, the mid-point between the bid and ask is currently $2.75.  Decision: Hold. 

106

2 Responses to Position Update Sep 25, 2008

  1. Bob 09/26/2008 at 12:09 PM #

    Mark,
    When volatility is this high, the bid/ask spread is huge. Do you have a rule-of-thumb you use for establishing what amount of credit you’ll seek when establishing a new IC position? Lately, my favorite “midpoint minus $0.05” strategy doesn’t seem to cut it. Please comment.

  2. Mark 09/26/2008 at 12:34 PM #

    Bob,
    I find it outrageous that market makers are allowed to publish such wide bid/ask spreads. I never did that when I was a MM.
    Nevertheless, we must deal with the situation as we find it.
    If I like the position, I’m willing to go to ‘midpoint minus one dime’ and then to midpoint minus $0.15′ etc. Higher IV gives me a higher premium for the call and put spreads I sell (as part of an iron condor), so I’m willing to give up a tiny bit more than I would under more calm circumstances.
    But, I’ve discovered that I can get better than midpoint on occasion these days. I don’t know why that happens, but I start above midpoint and then keep lowering my offer until I’ve gone about as far as I can go.
    Bottom line: If you don’t like the position when the price is a nickel less, don’t do it. If you still want the position, then you must either have patience or give up another nickel or two. Not such wise advice, but there’s not much else to do.
    Mark