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Thursday, September 16, 2010

Adjusting the Iron Condor

XAU hit a high of $193.92 today, and although it went down later on, I decided to adjust the Call options of our initial Iron Condor explained here

Initially our position was

Bought 10 OCT 175 PUT       @ $2.55 (-)
Sold     10 OCT 180 PUT       @ $3.80 (+)
Sold     10 OCT 192.5 CALL @ $5.50 (+)
Bought 10 OCT 197.5 CALL @ $3.60 (-)

The Call options here are the ones affected:

Sold      10 OCT 192.5 CALL @ $5.50 (+)
Bought 10 OCT 197.5 CALL @ $3.60 (-)

                                         __________
                                          +$1.90 (Initial credit we had received)

This wing of the condor was originally open for a credit of $1.90 ($1900 for 10 contracts)
Around the time XAU hit the $193.92 mark today, these options were traded as follows:

Bought 10 OCT 192.5 CALL @ $6.30 (-)
Sold     10 OCT 197.5 CALL @ $4.10 (+)
                                      __________
                                         -$2.20

So, that is the equivalent of closing our calls position, and we spent a debit of $2.20 in doing that. As a result we can say that, in all, we lost $0.30 on the 192.5 strike and 197.5 strikes operation. First we had obtained a credit of $1.90 and now we had to pay $2.20 in order to close them. +1.90 - 2.20 = 0.30 ($300 dollar loss for ten contracts).

However I had planed to adjust by opening a new vertical more out of the money:

Sold     10 OCT 200 CALL @ $3.00 (-)
Bought 10 OCT 205 CALL @ $1.80 (+)
                                   ____________
                                       +$1.20

And this gives us a nice credit of $1.20 ($1200 for 10 contracts)
So finally we have a new position in XAU which looks like this

Bought 10 OCT 175 PUT    @ $2.55 (-)
Sold     10 OCT 180 PUT    @ $3.80 (+)
Sold     10 OCT 200 CALL @ $3.00 (+)
Bought 10 OCT 205 CALL @ $1.80 (-)

Maximum profit of $2.45 ($2450 for ten contracts)
Maximum loss of $2.55 ($2550 for ten contracts)

Our breakeven points at $177.55 and $202.45 which is the price range where XAU can move and we still dont lose money at expiration.

Our new position looks like this
(Click on Image to enlarge)


And remember that momentarily we have a loss of $300 for doing one adjustment. This loss will be substracted from our final profit in order to obtain our final real profit on this trade.

I will probably be closing this trade once I reach the $1200 - $1300 profit plateau. Right now our profit is of around $697 which you can see on the white line. This white line will be growing over time and getting closer and closer to the green one. So, around $697 in profits so far, with a loss of $300 in adjustments and we have a decent profit of almost $400 dollars in just 7 days. Not bad. This is of course without including commissions, which I will talk about in another post.

Now, let's go get a life.

See the opening of this trade, Trading an Iron Condor position in XAU (September 11,2010)

Check previous article on this trade, Taking care of our Iron Condor (September 14,2010)

Follow this trade, The Perfect parasite (September 21, 2010)


Go to the bottom of this page in order to see the Legal Stuff

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