1. Try clicking on the name of the most recent article in the column on the right. This will remove the "Archives" list.
2. Try right click on the chart itself and open it on a separate window.
I am sorry that I cannot always make the chart small enough to fit neatly on the left column. I want you to be able to see the details I want to point out.
I Hope this helps,
Juan
---------------------------------------
Today LXK jumped to an 8th month high, breaking through the Bollinger band at a time when the market has been acting poorly.
It looks as though the stock will continue to rally, while the volatility is on the increase. Notice, however, that the IV for the long-term options are only slightly below the IV for the short-term options and that they are both below 40%. Looking back a couple of years in the IV chart, looks like it could go up quite a bit and give us some Vega gains.
Here is the resulting risk graph with my actual fill prices:
Note the slight difference between longs and shorts in their I.V. In the chart below is the Interactive broker's execution. It is good to have IB to fill my trades as a unit.
What do you all think?
8 comments:
I like buying strangles rather than straddles, so my version is:
sell the same 12 Jun 55 P/C. Buy 21 Oct 50 P and 16 Oct 60 C. The debit and actual risk is reduced from $18000 to $5240 and the theta increases from 33.5 to 56.7. The bad thing is vega drops from 537 to 342. I like to see the dip of the wings of the seagull to be about egual, which usually buying more puts than calls.
Ironcondor is Rick
Hello Rick.
Thanks for your coments.
It is true that the long portion of yoru trade could be a strangle rather thand a straddle, thus your cost would be less, and you could enter a larger number of contracts.
In my experience, adding contracts is not necessarily good because you would be adding a larger cost in commissions. Which would be O.K. if you thought that there was an advantage to doing so. I am not sure there is.
The way I have been describing this trade is as a Vega, Theta and Delta trade. The balance between one and the other is tilted, depending on the strike price of the long.
I have not done extensive studies on that. At first, I thought it was easy to enter all legs at the same strike price because there were no additional cash requirements as there would be in a diagonal (selling 55 June call and buying 60 OCt call is a diagonal).
Now, I believe we are entering another bear market and our bias will become bearish. If you want to enter this trade with a bearish bias, you could do the following:
STO 12 JUN 55p
BTO 24 OCT 55p
STO 12 June 55c
BTO 24 OCT 60c
Because you are spending less money on the call side, you could have a negative delta. For the trade to make big money on the UP side, the move would have to be strong.
Consider that we could select stocks that are performing well, even in this bearish environment that I forecast with the Elliott wave analysis. You could still make money in a bear market, using the PCCRC with all legs at the same strike price.
Perhaps you RICK can follow up on the trade as you entered, so we can make comparisons from here on.
thanks very much for your imput.
I received an e-mail from Danny and I believe we need to clarify something: an Iron Condor would be a 4 legged trade all with the same expiration date and contiguous strike prices. If I wanted to do an iron condor on LXR on OptionsXPress I could enter
STO 12 JUN 50p
BTO 12 JUN 55p
STO 12 JUN 50c
BTO 12 JUN 65c
The condor would work like a butterfly but with a wider area of maximum profits. These are cheap trades with large commission costs.
The PCCRC may be entered as an iron condor and additonal strangle. OptionsXPress would allow the IronCondor to have different expirations so your long may be October, as entered before.
A stand alone condor is good to take advantage of high volatility situations where the stock is likely to go sideways. I am adversed to "sideways" trades, but some of you may like it.
It looks like Rick likes this strategy since he uses IronCondor as his user name. Perhaps Rick and Danny could relate their experiences. Specifically, what situations would they select IronCondor for....
Thanks
Juan
IronCondor said...
Ironcondor is Rick
Welcome aboard IronCondor.
**Smiles**
Juan,
I was wondering what you have done with LXK. IV has increased considerably so I'm assuming you've exited the trade.
Hi Bryan
This has been a very interesting example on what to do when the stock moves near the strike price in the last week to expiration.
Last friday, the July options had a lower volatility than the June options that are expiring. So I decided to wait until that situation changed. On monday I decided to enter a high ask for the rollover (selling the put and call July 55 options and buy back the June). I placed the trade with a $2.85 credit but it did not execute. Today the exact same trade was 3.25/3.55. So I entered the trade at 3.35 with no takers. Notice that the June calls are OTM and the stock is rallying, so that the June puts may also lose some value tomorrow.
As the stock is at only $1.10 from my strike price, it could well close near the money, I could close the puts or the calls near the close (whichever is in the money), or let it exercise automatically and then close the stock (long or short) on monday and then either open July shorts or simply exit.
I dissagree with you that the IV is high. It is true that all expiry dates have increased in IV, but they are merely above 34%. I think that any change in Delta can have a greater impact than a decline Vega now. I like the look of the trade going forward, as the markets are bouncing up. If you are following the trade, do the rollover and tell me what you think!
Juan,
I'm paper trading LXK so I was "filled" in my rollover last Monday. I agree this position is poised to make some money to the upside as long as the market rallies over the summer.
I know one of your exit strategies is when IV in your longs move higher than 60%. LXK's IV has not been above 40 in the last 2 yrs; however, it did hit roughly 90% of it's 2yr ATM IV high. It could easily take a 20% hit on IV. So my question is...are you ever concerned when IV is high relative to the underlying's IV history, all other things equal? Or do you stick closely to the >60% IV as an exit point?
Thanks
Post a Comment