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Thursday, May 29, 2014

Closed Call side of June Iron Condor

Even though the 1965 short Call option of the June SPX 1710/1715/1965/1970 Iron Condor was showing only a 12% probability of being in the money by expiration, I decided to close the whole Call spread side today:

Now, why did I close that spread?

The main problem is the fact that I have a 1735/1740/1975/1980 Iron Condor in July, and that Call spread in July could be threatened at the same time if the market keeps moving up.

Based on some simple simulations using TOS, if SPX goes up to 1945 next week (just 1.33% above current levels), the July 1975 short Call option would reach a 30% probability of being the money due to all the time that is left until July expiration. But if that 1945 level was hit next week, then the June 1965 short Call would also be showing a number around 30% probability in the money. Even though its expiration is closer in time, it is also 10 points lower than the July Call option. To sum up, I would end up next week with two Call spreads in need for adjustment.

Obviously, many traders would criticize this move. I admit I like to adjust my positions early. Other traders prefer to wait a little more. I don't mind having more adjustments and smaller profits in order to avoid huge draw-downs. I'm a fairly conservative guy.

The Call spread was closed for 0.45 debit. It was initially entered for 0.50 credit. Profit = 0.05 or $20 in four contracts per leg. That small profit is the least important point. The most important point to me is the fact that I avoided a potential scenario where I had to defend two threatened call spreads at the same time in a low vol environment.

The Put side (1735/1740) is still in play, and the RUT 920/930 Put spread is also in play with June options. Both positions look pretty safe at this point. I have the potential to finish the June expiration cycle with a +2% portfolio growth or 24% annualized and I take that any day without complaints.

After closing the Call side of the June SPX Iron Condor, this is how current positions look:
June RUT 920/930 Bull Put Spread $120 credit
June SPX 1710/1715 Bull Put Spread $120 credit
July SPX 1735/1740/1975/1980 Iron Condor $320 credit
July SPY 191 Put Calendar Spread with around $300 max profit potential

Chart of SPX after market close for my own future reference:
(Click on image to enlarge)

Check out 2014 Track Record

Related Article:
Put side of Iron Condor successfully taken to expiration (June 21, 2014)

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


  1. You did the right thing by closing the June positions as you so stated so well. Your reasoning is sound. I have no bear call spreads on SPX/SPY. I missed my opportunity to sell the July SPY 172/170 on May 16th for about .13 credit.

    I believe we are pretty close to a short-term top. I think another 50 point move on SPX next month is unlikely. Saying that, I would not be ready to sell call spreads on SPX as I don't consider it overbought yet. I missed my opportunity this Tuesday to sell bear call spreads on this week's IWM at around 115/117. It would have created a nice iron condor with my 102/100 bull put spread. I am waiting for IWM to hit 116 before I sell some July bear call spreads. If it doesn't happen, that is fine with me. I am very comfortable with my bull put spreads.

  2. Thanks,
    I believe we are close to a short term top as well. but risk management is always priority specially when one of the Call spreads is 7 weeks away from expiration.

    Good to see you're not desperate for selling CALL spreads. Patience is the name of this game.


  3. I had a change of heart this morning. I decided to sell the July SPX 2000/2005 for .35 credit.

  4. hahaha
    Good luck my friend.
    2000 looks pretty safe at the top of the projected uptrend channel.
    I would have waited for a bit more credit, but I think you have good chances anyways.

  5. Hi LT and Jonathan
    I have learned a lot following your blog and comments for the past few months. So I thought I better offer some thoughts in return. I am one of the traders, you alluded to, who missed out last month because I was afraid to sell options in such a low volatility environment. I did implement a strategy this month that involved buying a JUL out of the money call and out of the money put, as well as selling a JUN iron condor position. The call and put are cheap due to the low IV, and they reduced my vega exposure and also seem to provide some protection against a faster move up or down. I’d be happy to share my position if you are interested.
    I like your new calendar time spread. I learned on one of the free mentoring websites that you should avoid buying your calendar if the back month option has IV more than 2 points higher than the front month options. But your back month IV is only 1% greater. You are in good shape if the SPY moves down quickly as the IV increase will explode. You face some risk if the SPY continues to drift up but I like your adjustment plan to purchase another calendar spread ahead to even out the deltas. My prior experience is the calendars are a little less liquid, require a little more commission as I have to purchase more of them, and take a little longer to reach profit goals. But they are a little safer and don’t hurt as much as a credit spread if the market moves quickly against them.
    Thanks for the great website. Good luck with your trading.

  6. Thanks for the comments Dave and glad the blog has helped you.
    Looks like you have either a Double Calendar or a Double Diagonal in place with June/July options. That's a good alternative for this market.

    The reason why I don't exploit them more often is because I don't feel I have a concise trading plan with them yet as I do with verticals. But, I will definitely be adding those to my arsenal in the future. Knowing what a double calendar or diagonal is, for me that's not enough. I need to design a well thought out trading plan that answers to questions such as: when to take profits, when to take losses, when to adjust etc and that takes time that sometimes I don't have.

    You're right about not overpaying for the back end option in a Calendar. And 1% difference in volatility between the front month and the back month is not bad. Obviously, the ideal situation would be to enter the Calendar when the front month options show a higher volatility than the back month ones, but that rarely ever happens with indices. It's true that they are slow in making profit or reflecting losses. I think I'm going to be way more relaxed with them.