Condor Options

Monday morning’s adjustment trade reduced the negative net delta bias of our February positions from about 3.7% of total capital at risk to less than 0.5%, with a negligible increase in gamma and vega. At the closing bell, the net delta of all our open SPY positions (including the March/April double-calendar) was marginally positive, at about 0.3% of capital at risk.

As the P/L curve above shows, this morning’s surge in SPY and the past week’s plunge in implied volatility put us back below breakeven, with an unrealized loss of about 0.8%. More important, if we want to keep that small loss from turning into a big one, is to start unwinding our February positions, focusing on keeping delta slightly bullish and reducing gamma and vega.

Supplemental Trades

Our February XLE portfolio, in contrast, is still doing well, ending the session yesterday with an unrealized return on total capital risked approaching 9%. Beta-weighted net portfolio delta was approximately 1.5% of total capital currently at risk. As of this writing, XLE is down to about $74.35 in pre-market trading, which means our risk profile is looking pretty good heading into the opening bell this morning.

Nevertheless, we’re building up a lot of gamma here, too. Although we’re a bit more flexible, with enough free cash to consider opening another February position if we need an upside hedge, it’s near enough to expiration that the balance is tipping toward unwinding (or at least rolling existing positions)—especially if we get the chance to sell into any increase in IV.