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The inevitable confronts us again. With yesterday’s drop of 38 points on the SPX, our Bull Put Spread short leg of 1240 comes within a stone’s throw of SPX’s closing of 1283. To be exact, a 43 points away with 20 days to go. Delta reached an unbearable 27. Several options came to mind, but these were taken.

The 1240/1210 Bull Put Spread was bought back at a debit of $6.00 per spread. In detail, the SPX July 1240 Put was bought for a debit of $13.50, while the SPX July 1210 Put was sold for 7.50. Net debit was $6.00, effectively closing the position initiated on the 3rd June 2008. See this post. Recall the spread was opened for a credit of $2.00. Net loss for the spread is $4.00 and net loss for the entire iron condor is $2.20 (the Bear Call Spread was closed for a gain of $1.80). See this post.

Next, I opened a Bull Put Spread at 1180/1150 for a credit of $1.75 (Sold SPX July 1180 Put and bought SPX July 1150 Put). I then opened 2 times as many Bear Call Spread at 1370/1395 for a credit of $1.00 per contract (Sold SPX July 1370 Call and bought SPX July 1395 Call). Net profit for entire position so far is $1.95 ($1.75 + 2 x $1.00 - $1.80). Additional margin required per allocation is $2400.

Hope we don’t have to do further adjustments this month.

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Closed the call spread of the SPX Iron Condor for $0.20. If a bounce takes place next week, we may take in some more credit by selling some call options, but time is running out. We have about 25 days left till expiry and there isn’t much premium left

unless we take more risk. I’ve grown a bit risk adverse and it is also not what this site is about. We’ll see next week. However, we may want to take some money in if we need to adjust the put side of the trade. With the 24 points drop, our put spreads are starting to hurt. I foresee if we hit 1300 in a hurry, say next 2 - 3 trading days, we’ll need to do some adjustments. I hope 1300 holds, but market doesn’t care what I hope for.

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The bull put spread leg of this month’s Iron Condor was established on the 3rd June at 1240/1210. SPX was trading at 1374. Credit per contract - $200.

Technically, I was expecting some support in the 1370 - 1375 region. In fact, the SPX managed to bounce off this support for the next 2 days, with an impressive 26 points gain on the 2nd day. It managed to close over the 30 day SMA. Unfortunately, it was the kiss of death. We’ve not even been close since. At its low of 1331, our Bull Put Spread was trading at $4 and a delta of 18.

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Last Thursday (29 May 2008), I initiated the Bear Call Spread of the Iron Condor for a credit of $200 per contract. As you know, I like to leg in one spread at a time. Just to be clear, I submitted the BCS as a complete order - I did not leg in the 2 parts of the spread. I used to leg into a spread when I was younger, and it was quite rewarding, at times. I shall share with you the method I used to leg into a spread on a rainy day (rainy day = a day where I get writer’s block). Back to the Iron Condor…

It was about 50 days out and a vertical spread of 1495/1520 yielded a credit of $200. That day saw the SPX hit a high of 1406. The trade was probably executed when it breached 1400. I’m not certain as

I was watching TV at the time. That’s the wonderful thing about doing option spreads in general and iron condor’s in particular. You do your homework half an hour before market opens, put in the trade and walk away.
Any way, some rationale for the trade. SPX breached the 30D SMA to the downside for the first time since mid-April. Prior to that, it fell through the trendline that had been established since March. Stochastics was oversold and I waited for a retracement to put in the spread. The timing was also right - 45 - 55 days from expiry. After the trade, the SPX went over the 30D SMA and spent a day there before coming down hard.

I could have been wrong and the SPX could have surged higher. But it did not matter. Iron Condors are non-directional. My technical analysis simply helped me maximize my credit, and hopefully result in a shorter duration winning trade.

The spread at 1495/1520 was more than 1 standard deviations away. Delta was 9 when I took the trade.

The Bull Put Spread was established on the 3rd June 2008 at 1240/1210, for a credit of $200 per contract.

More about the BPS in the next post.

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