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BookingAlpha Option Trading Advisory

Friday, October 10, 2014

October RUT Iron Condor Put side adjustment

Well, the good luck came to an end after some months of peaceful trading without need for adjustments.
This time it was the Put side of the October RUT 1020/1030/1230/1240 Iron Condor as RUT has just been lifeless in the last few sessions.

Here's the trade in details:

Buy to close 2 RUT October 1030 Put for 6.85
Sell to close 2 RUT October 1020 Put for 4.65
Net Debit: 2.20  ($440 in 2 contracts per vertical)

Now, as you can see here, this Put spread was part of an Iron Condor for which I received 1.66 credit or $332 in dollar terms for 2 contracts per leg (1.66 * 2 * 100).

This means that the Iron Condor as a whole resulted in a loss of $332 - $440 = -$108.
That's a pretty manageable loss. The capital invested, or maximum risk on this Iron Condor was $1668. Therefore, this loss represents a 6.47% loss on the investment.

In terms of the overall portfolio, a $108 loss on a model portfolio that was standing at $11788 is a very manageable 0.92% portfolio loss. Obviously that is all before commissions. After commissions, it is a -1.02% portfolio loss.

This is all assuming that the 1230/1240 Call side turns out to be a winner. But that will be the case, who are we kidding? The Call side will expire worthless next Friday for full profit. Because of that I already updated the entire track record for October one week in advance.

Right after the close of the Put spread, I deployed capital on a new RUT Credit Put spread, but I went to November expiration because at this point trading October monthly options is the same as trading a weekly, which I'm not a fan of.

Sell 3 RUT November 920 Put @4.51
Buy 3 RUT November 910 Put @3.84
Credit received: 0.67  ($201 in 3 contracts per vertical)
Max Risk: 9.33 ($2799 in 3 contracts per leg)
Days to expiration: 41

As usual a chart after market close for future reference:
(Click on image to enlarge)

Current positions:
October RUT 1020/1030 Credit Call spread: Will expire next week for max profit.

November RUT 970/980 Credit Put Spread: 79% probability of success. Will adjust if RUT hits 1030 or so next week.

November SPX 1755/1760 Credit Put Spread: 82% probability of success. Will adjust if SPX hits 1850 or so next week.

November RUT 910/920 Credit Put Spread: The new position described on this article. Not a concern at the moment.

I'm not a big fan of having 3 Put spread positions on. So, as soon as the market rebounds and I can exit one of them for a scratch, I won't hesitate. Preferably the November RUT 970/980 Credit Put Spread.

Related Articles:
Added Credit Call spread as a hedge (October 14, 2014)
910/920 adjustment closed for a profit (October 21, 2014)

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

1 comment:

  1. I like how you managed this position. Your adjustment appears to be safe for now but one never knows. RUT can continue to go down some more in the next few weeks. The last 3 weeks have been the worst 3 weeks for RUT since May 2012. It has gone down 5 weeks in a row.

    I still have the October RUT 1030/1020 cps in my portfolio. I think we will dip below 1050 next week but it should hold as support. If not I will adjust this position. It is a small position and I am not too worry about it.

    You can follow me on Twitter @lienjonathan where I tweet my 90% probability credit spread trades in real-time for free.