Option Portfolio

Market Close January 19, 2017

P&L up $3

How to Adjust a Losing Iron Condor?

January 25th, 2017

Looks like my pre-earnings Iron Condor strategy was indeed a bad idea. GLW released their earnings before the market opened Tuesday 24th January to the surprise of analysts.

Core EPS turned out to be $0.50 on a predicted $0.44. The stock opened strong and rallied higher throughout the day to close the session up 5.7% to $26.18.

The stock is now outside the upper breakeven point of $25.38 and if it continues I will realise my max loss of $186 ($62 per contract).

What Options do I have to Adjust?

I have a few alternatives to consider as to how to manage this trade at this point:

1. Do nothing and hope that the market pulls back from now until expiration
2. Sell a higher strike put spread
3. Sell a higher strike put spread in the next expiration
4. Reverse the existing short call spread into a long call spread
5. Close the short call and leave the long call to run
6. Double down with another Iron Condor

In considering the above, I looked at the option prices at the close for the Feb 17th options:

Since the pop in stock price due to earnings, the uncertainty has since been remove and can be seen in much lower option prices. Implied volatility has dropped to 18% so 2, 3 and 6 don’t look like bringing in much premium. Plus, putting on another Iron Condor in March would mean having to put it with narrow strikes in order to make it worthwhile but also means a lower chance of the stock staying between the bands.

Also to consider is the sentiment since the report, which was very favorable for the future outlook of the stock. I would say that I am now bullish on the stock.

Pre-market activity also shows a strong open with the stock having traded $26.30 with an hour before the open. So what I’m going to do is go with #5 above; close out the short $25 call and leave the $26 long call open. The $25 calls closed at $1.32 but with the pre-market looking to open higher, I’m not sure what price to go with. Perhaps yesterday’s offer price of $1.35?

Iron Condor Pre-Earnings

January 19th, 2017

It's not always a good idea to take on short volatility strategies pre-earnings, but take a look at this Iron Condor setup for GLW.

The stock has earnings out January 24th and the options expire February 17th. The implied volatility suggests there is some uncertainty leading into the announcement; IV is relatively high at 25% compared to historical vol of 15%.

Max profit on this is $38 per contract, which is the net credit received at the time of trade. Max loss is $62. At the current volatility level, there is a 69.27% chance of success with this trade.

Long 5 $12.50 Call Options

Trade Start: 25th October

Description.

Option Scans for 24th October

Option Prices for 24th October

Long 5 $15 Put Options

Trade Start: 24th October, 2016

Only 0.55 for these puts when they are 3 months out. The chart doesn't make it look like a good trade but there's plenty of time in this one. Earnings are out October 28th.

Option Scans for 21st October

Option Prices for 21st October

2016 Closed Position Summary

2015 Closed Position Summary

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49 Comments

Ratha August 27th, 2013 at 9:14pm

Hi Peter

Many thanks for your replying to me quickly.

But what i would like to do in this case is that i don't understand how to calculate general market risk of equity option risk under scenario approach in market risk as in example linked : http://www.bnm.gov.my/guidelines/01_banking/01_capital_adequacy/gl_05_Capital_adequacy_framework_RWA.pdf
in page 298 described about General Risk to Scenario Approach in b) and c) which shows the result -15.57, -9.21, -0.92.....how to calculate it?

Best Wishes

Peter August 26th, 2013 at 6:15pm

Hi Ratha,

You're welcome to put together your own using my options pricing spreadsheet as a base - or you can use an online version of the option calculator.

Ratha August 25th, 2013 at 11:52pm

Hi sir

I would like to all of you to explain me how to calculate the matrix in call or put option. price interval 8%, volatility 15%, market value $19.09, strike price $20, risk-free rate 5%, residual maturity 0.36 year, annual dividend rate 0%.

Thanks for your respond.

Peter August 1st, 2013 at 6:40pm

Hi Greg, Which spreadsheet are you having troubles with: the pricing or the volatility spreadsheet? Have you seen the support page?

Greg August 1st, 2013 at 1:53pm

I tried using the workbook spreadsheet but not sure if I am using it correctly. Are there direction or phone # I can call for help???

Peter February 4th, 2013 at 4:11pm

Hi Vidur,

Long straddles are good strategy when you expect a large move in the underlying, however, the movement needed for the strategy to be profitable depends on the length of time until the expiration of the options and the total price of the straddle.

For example, the straddle may be priced so high that the stock may need to move 4% just to break even. Alternatively, if the implied volatility is low a 2 to 3% move may just result in a decent profit.

vidur gupta February 4th, 2013 at 9:49am

first of all thanks for the insights .. really appreciate it !!

Is long strangle a good strategy to be played when you expect 2-3% move in stock ??

Optionsbear January 19th, 2013 at 3:20pm

Hello what do you know about Second order greeks vanna, vomma?

Arun December 25th, 2012 at 3:42am

Very Nice....

Peter August 29th, 2012 at 10:53pm

Mmm - you're right. The data comes from Yahoo and they seem to be behind on the latest data for India. I'm not sure when NSE data is updated to Yahoo - hopefully before the market opens!

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