Catching Up With The Market and Our Trading Results

It's been a little while since I've been able to post. With school out for Spring Break it was time to get away with the family. Upon our return, it was time to catch up with all of the work that accumulated while we were off having fun.

The April spreads were closed. With the market rallying hard heading into expiration, we were forced to close our trade for a loss. Let's tally up the damage.

As of February's expiration, we had managed to rack up an 11.75% return, or a total combined credit of $1.10. These profits were generated from those trades expiring in January and February, and are documented on this blog.

We sat March out. No trades were opened because I could not find a spread that provided sufficient return to justify the risk of opening it. That worked out well because the market sold off hard on February 27th.

For April, a $1.20 credit was generated from the sale of a 1,460 - 1,470 bear call spread. At that time, the outlook for the index was bearish. The bulls returned early, however. A bull put spread was opened at 1,355 - 1,365 for a .60 credit. The total credit for the trade was now $1.80.

The suspense grew slowly for the remainder of the month. The market did not trigger an adjustment of our position until Friday, April 13, 2007. Prior to that date, I had become concerned and decided to tighten up the spread. The put spread was closed for a .10 debit. The long 1,470 call was sold and rolled down to $1,465, for a net debit of .60. The net credit on the trade was now $1.10.

When the trigger was reached, we were left with the weekend to evaluate potential adjustment. With less than one week until expiration all we could do was close the trade. Resistance was expected at 1,460, and it appeared that we might be able to close the trade for a modest debit. It just was not meant to be. The bulls smashed resistance at 1,460 early on Monday morning and kept on running.

The put spread was closed for a nominal sum, but the call spread cost us a pricey $3.40.

That left me with a net loss for the month equal to $3.40 - $1.10 = $2.30.

The year-to-date return is a loss of $1.20 or -12%.

From here, we shake off our disappointment and move onto the next month.

Christopher Smith
TheOptionClub.com

Adjusting An Iron Condor Near Expiration

The market took back all of the ground it gave up on Wednesday, and now is hovering within 2 points of my adjustment trigger. A comment was posted to my last post questioning when I will close the spread and the short answer is when I can take my profit or am otherwise forced to do so by the market.

The put spread is ready to close. It is a 10 points spread and I have placed a limit order to close it for a .10 debit. That allows me to keep .50 of the original .60 points I opened it for. If filled, I am left with a bear call spread.

Being this close to to expiration with only 12 points of room between the short strike and the market is a worrisome place to be. The reason it is concerning is because the market, as it has shown us recently, is capable of making a 10 point or better move. A big upside move could really hurt a 10 points spread.

I am taking some of the potential sting out such an event by rolling the long 1,470 call down to 1,465. This will leave me with a 5 point spread, cutting my risk in half. It will cost me some of my credit, but at this point protecting against catastrophe is more important than maximizing profit potential on a credit spread.

Mind your risk, too!

Christopher Smith
TheOptionClub.com