Share a Trade: Day 8 Update

Trade
closed.

Experiment
a success. 

Reminder: The experiment was to consider this question: 

Is it a good idea to close a position when it
reaches a pre-determined profit?  The alternative
is to manage each position on a daily basis.

Original Trade
described.

Paid $1.90 to
close. Experiment completed successfully. 
Earned $110 per iron condor with $700 at risk.  Return of 15.7% in 8 calendar days. 

I’m sure I
could have done better, but this is an excellent profit and best of all, this
position presents no further worries with more than three weeks to go before
the options expire.

One
trial does not provide enough evidence, but this worked well enough for me to
try it again next month.

71

e.posiiton se the position.

portfio I know

4 Responses to Share a Trade: Day 8 Update

  1. Roland 08/27/2008 at 12:58 PM #

    Mark,
    Your really low commission makes it a lot more feasible to consider low profit trades.
    I assume the fairly large drop in the RUT on Monday did not have a significant impact on the IV of your position or you probably would not have a profit right now. Is my thinking correct?

  2. Mark 08/27/2008 at 1:57 PM #

    1) I don’t consider either $110 (before commissions) or 15+% in 8 days to be a ‘low profit trade.’
    2) More profit means more risk, and I’ve decided that controlling risk is my number one priority. It does not have to be your priority.
    3) Yes, low commissions help, but in today’s low-commish world an investor should not decline to make a trade because commissions are too high. I did target an extra $0.05 profit to cover commissions. In reality, I took in an extra dime.
    4) The large drop, was not large by the standards of my position. I was short the 680 puts, and a dip to 720 was not at all frightening. IV increase was fairly insignificant. You would have to see a MUCH larger IV increase for it to have a significant impact.

  3. dave 08/27/2008 at 5:40 PM #

    Good trade mark. I made a similiar choice today on some es mini s$p calls I was short. It was tempting to hold them and collect time decay over the weekend but my reason for the trade had passed and it was hang on and hope or take a profit and exit. My profit wasn’t that big but, again it is a risk reward situation. Does the reward merritt the risk especially if the reason for the trade or profit goal has been acheived . Thanks for this great blog.

  4. Mark 08/27/2008 at 10:54 PM #

    Dave,
    I appreciate your kind words. Thanks.
    I agree. When risk/reward are not good enough, there is no reason to be in the trade.
    Mark