October 2009 Long Iron Condor

October 2009 Long Iron Condor (Sep. 3, 2009)

October 2009 Long Iron Condor (Sep. 3, 2009)

At long last: a posting of what in the world I’m doing with my October 2009 Long Iron Condor.  Its trigger points are 106/109 on the call side and 95/92 on the put side, with a 3:4 call:put ratio.  The initial net credit on the call side was $0.64, while the initial net credit on the put side was $0.62 for a total of $1.26.  Current valuations are $0.67, $0.47 and $1.14, respectively, for a profit of $0.12 or 9.5%.

This condor is nearing its midlife before heading towards old age. Today, 41 calendar days remain before expiration. Life began for this condor 23 calendar days ago (Aug. 14), followed by additions nine (Aug. 28) and five (Sep. 1) days ago.

Expiration is on October 17 (last day to trade, Fri., Oct. 16), so I’d like to hold it until the end of September. At that point, I’ll probably bracket the condor very tightly (99 and 102 stops, most likely, assuming the current price is within that range) to squeak out every last bit of profit that I can. (The last thing I’d want to do is enter expirations week with a heady profit, only to see all of it disappear as the market does the inevitable Berserk Dance, which tends to strike at the very worst moment.)

Naturally, I reserve the right to change my mind or act sooner, depending on market conditions.

SITUATIONAL ANALYSIS

On the call side, there is not much worry: the upside spread curb of 106 is outside the first standard deviation of potential market trajectories. Personally, I don’t have a stop loss on these at this time, simply because I have doubts about a spontaneous 6% market rally occurring before I have a chance to get to the computer in the morning.

Financial Armageddon: The Argument in Favor of Buying Back Sold Puts First

Financial Armageddon: The Argument in Favor of Buying Back Sold Puts First

On the put side, I’m a little more cautious. I’m tentatively holding stop limits for the sold puts at 98. In a perfect world, I’d buy those back early in the day and/or week and then try to ride the purchased puts as the market moves lower. This, of course, is risky, and requires strict supervision of minute-by-minute market conditions, with plenty of trailing stops set to cover potentially sudden changes in momentum.

To help explain why I favor a two-part breakdown on the put side in case of a market collapse, consider the following scenario (in aggregate with the November 2009 long iron condor), which assumes sold puts were repurchased at their most recent levels:

Should SPY move to 95, an immediate 63% profit would result. At 92, a 100% profit is realized, and 200% total profit is found at around 86.25–close to the recent market bottom in July. Sure, the odds are against such a dramatic and profound move, but there are a lot of perma-bears out there who will argue that such a scenario is rather plausible for any number of reasons.

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