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

Peter July 16th, 2011 at 7:46am

Mmm...not sure about how exactly to calculate VAR, but here's a heavy PDF that explains it if you're interested - Value at Risk.

Is this what you were after or are you looking for a calculator?

daniel July 15th, 2011 at 12:58pm

hi peter,

can you also tell us how to calculate the value at risk and the expected shortfall of options? Would really apreciate it. Thanks.

Daniel

Eric June 14th, 2011 at 7:52pm

Hi Peter,

This blog is amazing. Thank you so much. I just sent you a PM, so looking forward to talking with you soon.

Thanks!

Peter March 19th, 2011 at 6:57pm

Hi Jitendra, no, options will never be offered below their intrinsic value.

jitendra March 18th, 2011 at 8:33am

halo Peter,
I wanted to clear some doubts,,,,as a starter with options....
I have few questions

suppose current market price of X company is 5 euros and I purchase a call of 7 euros (2 euros is the premium) I have heard this ...but are the call ever available at discount).

Peter January 23rd, 2011 at 3:19am

Hi there, I'm happy to hear some suggestions on what you'd like to see on the site. Maybe some tutorials on option trading software etc?

Anonymous January 23rd, 2011 at 12:01am

I don't know what you call this but this is not option tutorials for me, more like an excerpt from some paper.

yogita October 5th, 2010 at 1:21am

i want to know that how to analyse put call ratio. plz give me the writeup on theis topic.

Mahesh D December 11th, 2009 at 12:34am

Excellent analysis and the information provided is very helpful..

Thanks

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