Friday, March 5, 2010

03/05 OEX Weekly Iron Condor

OEX got within exactly 0.1 of striking my stop loss. I’m very glad it came back down and got within my break-even. This was a losing week, but not a major hit. After it was all said and done I learned a major lesson in controlling my anxiety and letting the trade’s positive edge work. Let me further explain:
Early in the morning I wondered about closing the position. I had a feeling it was going to push higher, after going back and forth I decided not to touch it. After all, this could work better this time, but would mess me up in terms of being able to set and forget. Say next week I get the same feeling but end up cutting myself short. Once you start adding extra variables into the equation, you end up messing up the trade’s edge. It is similar to skipping one month after a losing month, you may simply skip a winner..
Bottom line: keep it consistent. If you have a stop, leave it alone, that’s why it is there in the first place.


Chad said...

Hi Gustavo,

I am assuming your “set it and forget it stop” was 1.5 cash flow. Would you mind sharing what your stop was? Where would you have been stopped out given price/decay today? At 521.55?

I thought you never want to be in the money and past your short strike (520.0) because of the danger of being exercised. You were/are in the money (.45 beyond the 520 short strike) and isn’t that too risky?

I am used to setting stops 5-10 points before a short strike of a call/put spread in a normal 30 day condor such as the RUT. But here, you set your stop based upon 1.5 cashflow, so I am worried about being in the money at expiration and being exercised. If it were a RUT condor play, no big deal to be between the strikes (apart from taking the draw down). But I know the OEX is a different animal. Do you want to set the stop before the short strike because of this (say 519)? Or am I not thinking this through?

You are so right about changing things based on emotions… set it and forget is easier said than done, especially if you just feel the market will do something. The temptation to do something is so strong sometimes.

Have a great weekend my friend,


Gustavo's Trades said...

Hey Chad, my stop was 1.5x the cashflow, because I got .40c for the condor, the trigger for either side was 1.00 to close. That would be a net loss of about .60 (not counting slippage).

It got past my short strike, and I thought about the early exercise risk, but my understanding on that is based on the article I've posted time and again under my comments, it says the exercise value is the previous' day intrisic value, since Yesterday it was 0, no risk of early exercise on the expiration day. At least that was my thinking behind

The stop would be around 521, depending on time of day, earlier in the morning it was closer to 520, but later in the afternoon, due to time decay, it got a bit further out.

Hope that helps,

Gustavo's Trades said...

I don't know who to look for an exact answer on the early exercise, will do some research on the CBOE web-site, they should have all the detail on the OEX weekly contracts.

Just a disclaimer here, I STRONGLY RECOMMEND anyone thinking about this strategy to do his or her homework and fully understand the risks. I am not recommending anyone to do this trade, this blog is simply a log/journal o my positions, not a recommendation site/newsletter. May need to publish some sort of disclaimer, will put something together. :)


Chad said...

Thanks Gustavo. I will see if I can find something at the CBOE website as well regarding this topic, and will share if I find something. I am still doing my homework on the OEX and evaluating the risks (as I do with all options strategies) I am still paper trading for now.

Have a great weekend buddy,