Condor Options

While we’re waiting for our prior order to get filled, we’re putting in a similar order for BF Hedge #2, as follows:

Day limit order
Buy to close 1 XLE May 70 put
Sell to close 1 XLE May 74 put
Sell to open 1 XLE May 78 call
Buy to open 1 XLE May 82 call
for a net credit of $0.94 or better.

Note that, as in today’s other XLE trade, the number of contracts specified above represents the number of contracts in the original butterfly’s wings. The resulting position will be an equally sized (in contract terms) May 66/70/78/82 iron condor. Also note, again, that as a Supplemental Trade, this order will not be autotraded.

Analysis: This afternoon’s two trades essentially unwind our downside hedge positions—but we’re doing so in a way that adds to our time-decay returns, creating the potential to recover much of our unrealized loss…and still possibly come out with a gain, even though we’ve undergone the most adverse conditions. Our unrealized Supplemental Trades loss is approaching our maximum-loss stop level; however, with today’s adjustment trades, we’re greatly increasing  theta, and thereby increasing our projected probability of profit, to  nearly 41%.

The Supplemental Trades portfolio is now virtually delta- and vega-neutral, so gamma is our main concern. Because we now have two iron condors in the mix, I’ve shifted the projected P/L curve forward, to account for the possibility of leaving the condors open nearer to expiration. Given our current positions, gamma should flatten out in the last few days before expiration—but, as always, risk-management is our top priority, and we’ll take any necessary action (most likely closing positions) to keep losses from increasing.

NOTE: Supplemental Trades are optional and primarily intended for more experienced/risk-tolerant subscribers. They are not autotraded, and have no bearing on our core newsletter portfolio; however, we follow up by posting any additional entry or adjustment trades that the Calendar Options risk-management approach may call for. Also note that it’s important for anyone who chooses to participate in Supplemental Trades for a given cycle to follow all Supplemental Trades in that cycle if they wish to match our risk-management profile.