Condor Options

Positive vega and disciplined risk-management kept us out of any serious trouble during last week’s wild ride, and our new, tighter restrictions on adding vega when an adjustment is triggered during a volatile sell-off prevented today’s nearly 30% drop in IV from coming back to bite us. Here’s where we stood a few minutes before the close today:

• The May/Jun 116 call calendar at the center of our adjusted position was trading for about $1.43; the 108/120 double-calendar that resulted from Friday’s adjustment was priced around $2.06. That puts our unrealized gain at about 12.8% of total capital at risk and our Model Portfolio return at about 4.2%. Today’s bounce in the S&P left us virtually delta-neutral, and our base-position vega is just shy of 29.

The plunge in implied volatility today did, nevertheless, pull down our P/L curve quite a bit compared to Friday, and with our position vega climbing as expiration approaches, we’re going to have to keep an eye on the upside risk. Adding a second May position above the market as a delta hedge this week wouldn’t be out of the question, but that’s something we could do only if IV comes down at least another 20%–25% within the next couple days. This close to expiration, however, we’re ideally looking for an opportunity to exit the position on a spike in IV, with SPY near the center of our profit curve.