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BookingAlpha Option Trading Advisory

Wednesday, January 12, 2011

Iron Condor play on POT, trade closed

I have been super lazy blogging lately and in the mean time swallowing the loss on the Iron Condor played on POT. The battle started here and then after some upside movement, there was an adjustment made which is explained here.

On December 29, 2010 POT hit an intraday high of 154.44, effectively breaking our Iron Condor profitability range, which after the adjustment was between 132.88 and 152.14. At this point I closed the position by buying back the Iron Condor at $200 (buying back because the Iron Condor is a credit play).

So, The final result is:
- Initial Iron Condor opened for $251 credit and a risk of $249, on December 17, 2010 (commissions: 11.80)
- Adjustment made on the Iron Condor. Debit of $77 on December 28, 2010 (commissions: 11.80)
- Closed the Iron Condor position for $200 debit. (commissions: 11.80).

As you can see, out of the initial credit of $251, I didn't keep a dime. $77 spent on the first adjustment plus $200 spent closing the trade (total $277 spent). That is a loss of $26.
A $26 dollar loss, in an initial risk of $249 represents a 10,44% loss. But make no mistake, if we add commissions (3 x 11.80 = 35.40) then the real loss is 35.40 + 26 = 61.40 which represents a 24.66% loss.

I think the lesson with this play is again, extremely conservative when playing an Iron Condor on individual stocks, and try your best to make these plays on Indexes instead.

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