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.
Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Fee-only Wealth Advisory firm Providend.
You can view Kyith's current portfolio here, which uses his Free Google Stock Portfolio Tracker.
His investment broker of choice is Interactive Brokers, which allows him to invest in securities from different exchanges all over the world, at very low commission rates, without custodian fees, near spot currency rates.
You can read more about Kyith here.