This has got to be my most difficult trade. Sad to say i did not make any money out of this. But I’m glad that I did not take any lost from this trade.
The difficulty in trading a condor in a high IV environment can be felt fully in this trade. Of course i did not have the luck that InvestmentJunkie at SGfunds have when setting it up.
I set all my legs up on the 11th of October. That is about 26 days away from expiry. I reckon that with the high IV, i would not need to follow the rule to set up between 30 to 45 days of expiry, since i can get at least $1.00 of credit.
SOLD 930/920/760/750 for $1.06 of credit
On the 19th of October, RUT made a drastic drop to 798. The delta of the 760 Put hit 18 (tat is before i went to sleep). If I had not closed it, it would be expensive for me to buy back.
BOT 760/750 for -$1.35 debit
At the same time, I open a vertical call to take advantage of the current market trend at 9 delta.
SOLD 890/880 for 0.57 credit
Everything seems alright up till now, until on the 29th of october, sensing the falling volatility, I took advantage of this by selling a PUT vertical at 9 delta.
SOLD 750/740 for 0.50 credit
On 1st of Nov, another huge downward movement on the RUT took the delta of my Put vertical to 17. I roll the vertical down to 2 strike away.
BOT 750/740 for -1.45 debit
SOLD 730/720 for 0.55 credit
The 2 current adjustment and the initial trade. (Click image to enlarge)
On 2nd Nov, I close the vertical call that I put out initially to create liquidity should i need to do adjustments as my liquidity looks to be drying up. This would turn out to be a very good decision.
BOT 930/920 for -0.05 debit
6 days before expiry, the RUT sits at 775 and my delta on the 730/720 Put spread is around 14 before market open. Judging by what i observed in previous day trade, the possibility of the RUT making 4% downward move is very real. I decide to save this trade.
Fortunately, it went the way i anticipate. I bought back the 730 Put at a hefty price and wait for the RUT to move down further. At the lowest pt, I sold the 720 Put. A 20% loss turn out to be 0%. The following shows the 1 min chart for that day:
BOT 730 Put for -4.10 debit
SOLD 720 Put for 4.10 credit
Then i sell another vertical call at 9 delta.
SOLD 830/820 Call for 0.50 credit
Last trade was to create liquidity for myself, just in case something drastic happens on the last 2 days of expiry.
BOT 890/880 Call for -0.10 debit.
The end result? Alot of sleepless nights. This goes to show a few things:
- Don’t think you are very smart to outwit the market. The market can really bite you hard. I was fortunate enough to come through this 26 days with so many huge downward movements relatively unscathed
- Always manage liquidity well. Without the liquidity, you can’t even adjust. don’t deploy 100% of what you have down to the minimum.
- IC doesn’t work well in all market condition. The rules of this BMIC will save you, but you won’t earn something nice all the time.
- A loss of 0.2% on my maximum amount risked. Thats not a very pretty figure, but it can be much worse.
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