I have a question regarding risk management.
I currently have a
position on in the RUT. Approximately a $13,000 position. It is a
mixture of 20 point iron condors and 30 point double diagonal's
(Selling options with a 20 Delta for both).
My profit at the close
yesterday was $300. As I speak (intraday) the current p/l is -$22
dollars. The RUT has moved down approximately two standard deviations(1
day), so there was a big move today, at least intraday. My question is,
should I be down this much money? Is this normal?
In other words I was
up $300 yesterday and the stock has moved two (1 day) standard
deviations and I find myself with no profit. Is this characteristic of
a bad risk manager? Is the fact that I had a $300 profit and am now
back to zero a bad thing, a very bad thing, or completely normal on a
$13,000 position? Just wanted to know what your thoughts were on the
Let me be clear: You cannot ignore the value of your account. A big gain or loss should be dealt with assertively. But your P/L will change daily for any number of reasons. When the change is small, it's not a problem. What may be a problem is your risk. Analyze that and don't worry about account value – when changes are small.
Also, you did not 'have a profit' yesterday. Your positions were marked $300 better than your trade prices. There is no reason to believe you could exit at those prices. None.
1) Those are high deltas for options to sell, but that's from my vantage point. You are obviously comfortable with those numbers. Some traders, such as you, prefer working with higher premium and spreads that are CTM (closer to the money).
2) You have a $13,000 position. I don't have any idea what that means. I don't know whether that's your maximum loss or your margin or ??? But, $300 is a very small portion of that number and not something to concern you. Sure it's normal. Markets change and so do option prices and they do not always change as predicted by the Greeks. Aberrations tend to last for a short time.
3) Why is your position losing? Are you long too many delta at this point? Are you short too much vega? I doubt that either of those applies right now. If it's not broken, don't fix it.
4) Who says you are losing that cash? Is it the report from your broker? Is that information based on last trade? Is it based on mid-points between bid and ask? If you are concerned with this number, it's mandatory that you discover how it's determined. And that should convince you that it's sufficiently inaccurate, and that following it continuously is a waste of time.
I know that my account fluctuates in value every 2-3 minutes, when my broker updates the value of my positions. Those numbers are nothing to me. You want to look at the Greeks to figure out if there is a good reason to be concerned over this loss in account value.
5) Bad risk manager? No. The job of a risk manager is to be certain risk is at acceptable (or lower) levels. Did you ignore something that you believe you shouldn't? I doubt it. You cannot be concerned with small fluctuations in account value. What should concern you is the P/L graph, your exposure to a continued move, and deciding whether it's too soon to do anything about that possibility.
You should expect to lose money when the market moves. That's the nature of your positions. You have negative gamma.
If you get worried about nothing and rush to adjust every time the market moves a little, you will be buying tops and selling bottoms and you will lose money. But, if you fail to adjust and just watch the positions, you are not being a good risk manager.
Bottom line: Completely normal