Sharing a Trade

It’s Wednesday morning as I
post this blog and I’m sharing a trade I made yesterday.  I don’t like the idea of posting specific
trades for fear that some readers may believe it’s a recommendation to be
followed.  It emphatically is not.  In fact, it’s an experiment.  Over the past two days, I’ve been writing
about the idea of managing an iron condor position with the intention of
closing the trade as soon as a pre-determined profit target is reached.

In Part
II
of that discussion, I concluded that closing for a specific profit is
not the best method for managing iron condor positions  Closing the trade is an important decision
that must be made on its own merits. Nevertheless, I thought that following one such
trade may be educational.  Obviously I
won’t be using this single trade to make a change in my investing habits – no
matter how successful, or unsuccessful the results – but I thought readers who
were interested in the discussion also be interested in following an example.

The Trade

Bought
10 RUT September iron condors when RUT was priced near 732:

Bought
10 RUT Sep 670 puts;   Sold 10 RUT Sep
680 puts; credit $1.50

Bought
10 RUT Sep 790 calls;   Sold 10 RUT Sep
780 calls; credit $1.50

Credit
per iron condor is $3.00, or $3,000 total for 10-lots.

 

The Objective

This
is a 31-day iron condor and the margin requirement is $700 for each spread.  ($1,000 margin for a 10-point call or put
spread, less the $300 cash collected.)

Objective: $100 per
iron condor.  To cover most of the commissions,
I’ll aim to make an extra nickel and pay $1.95 to close the position.  That yields a profit of $1.05, or 15% of the
$700 maximum loss (aka ‘value at risk.’)

I’m hoping to achieve
this target in half the lifetime of the options – 16 days (or less).  The trade date is 8/19/2008.  Sixteen days later is 9/4/2008.

Progress

If any adjustments are
required, I’ll note them.  If not, I plan
to report on progress every week (Tuesday).

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