03/22 GLD Calendar

GLD is around 94, so far nothing needs to be done.

95% Probability of staying in the trade Tomorrow

Stops:
Close if GLD at or above 97.50 or at or bellow 86

Note: I use contingent orders for stop, only difference is that I set them to trigger at the end of the day 12:30 PST

Bellow is the profile

03/22 OIH Condor - Daily Update

I'm considering re-opening the CALL spread on OIH. The trade as stands has no up-side risk, yet the profit potential is very small. I'll evaluate the possibilities Tomorrow morning with fresh market data to look at.

Probabilities of success:
1) 99.99% of being adjustment free Tomorrow
2) 74% probability of expiring profitable
3) 925 historical probability of staying between b/e strikes by Friday before expiration

Contingent Orders:
Close 1x PUT spread if OIH at or bellow 63.29

03/22 XLE Double Diagonal - Daily Update

Not much to report, price right at the center of risk profile. Just looking out at adjustment levels

Probabilities of Success:
1) 97% of being adjustment free Tomorrow
2) 47% probability of expiring profitable
3) 69% historical prob. of staying between B/E by Friday before expiration

Contingent Orders
1) Buy 2x 41/38 PUT vertical if XLE at or bellow 40.30
2) Buy 2x 44/48 CALL vertical if XLE at or above 46.70

03/22 RUT Condor - Daily Update

RUT eased off from the 420's area. Got really close to my stop loss. The probabilities of success are better now. No change planned, only contingent orders for stops

Probabilities of Success:
1) 94% it will be adjustment-free
2) 75% implied probability of expiring profitable
3) 97% historical probability of staying between B/E untill Friday before expiration week

Contingent orders:
1) Take profit for CALL and PUT spreads @.10c (GTC order)
2) Stop if at or above 422 or at or bellow 295 (Day Order)
Here are the profile, dashboard and historical probability charts

Objective Decision-Making

I've been thinking with my buttons regarding the decision-making process of adjusting a condor. If you've been following this blog, you know I adjusted the OIH Low Prob Condor this week. After I did the adjusting, I kept thinking: now there is risk, but a lot LESS rewards on the trade.

Here is why: Once I cut 1x CALL spread, it took away a lot of my profits, and now I'm trading for an expected pay-off of $75. This is 6% ROI, for a risk of 18%... it is a 3:1 risk-reward ratio and I don't like it. So, what should have been the process here?

Being the Project Manager that I used to be, I went to an old tool I used to apply for decision-making: a decision-making tree. You can find more information at http://en.wikipedia.org/wiki/Decision_Trees, or simply go to a bookstore and grap a project management for dummies book, it should have a simple decision-tree there. If not, get another book :) Here is what a decision-tree would look like for this scenario:

The tree would have told me "do nothing" by a margin of 10 to 1.

Let me explain how the tree works:

1) The first 2 nodes are the decisions you are considering

2) For each decision you make, there are events and probabilities and pay-off associated with them. In the example above, if I close the CAL spread, I'm left with 3 possible events: OIH goes beyond 95, Stays between the strikes, or goes bellow 58. Then let's look at each event and its respective probability and pay-off:

a) There is 15% probability that OIH will go beyond 90, causing a loss of -284

b) There is 82% probability that OIH will stay between the short-stikes, causing a profit of $75

c) There is 3% probability that OIH will go bellow 60, causing a loss of -264

Repeat the process for the "Do Nothing" decision, and update the values, because the probabilities are the same regardless of what you do.

Finally, the tree simply weights the risks/rewards and probabilities and spits out the path that is most likely to give you the best rewards. In this case, I used all probabilities and values based on Friday before expiration.

TOS is great because it calculates the probabilities of pricing expiring beyond these limits and where your profit-loss would be. I'm consdering purchasing the decision-tree add-on for excell to help me on further exploration. What do you think? Have you done something like that for trading? I'm waitting for comments/feedback.

20/03 All Trades - Quick Daily Update

For those who, like me, made through one more week of trading under wild market conditions, congrats! We`re one week older and wiser.

As far as I can tell, all my trades survived this week, they're still in the table. On the not-so bright side, they were all adjusted one way or the other. Now we`ll need som time to allow theta to take care of the cost of adjusting.

One of the realizations I had this week is the fact that adjusting condors may not be the best answer after all.. What if you simply allowed the trade to work (or not), and placed your stops at 1.5x times your original cashflow? I`ll be looking into that over the weekend. Kudos to TrackingCR for noticing that too and making a comment on the risk profile for the RUT HP.

Here is a collection of risk profiles. I`ll post again later on the weekend with a detail plan of action for Monday for each Trade.

RUT Condor
XLE Double-Diagonal

OIH Condor

GLD Calendar

19/03 RUT LP - Santucci way

I've added a paper trade to follow Mark Santucci's method. Will start blogging it next week, am just too tired Today... Alergy season