Condor Options

I’ve gotten a few email messages from member asking, “Are we going to hold our May portfolio open until Friday?” So while we await the typically senseless, but always inevitable, fireworks traders insist on setting off after any news from the FOMC (in this case, minutes from the last meeting), I thought I’d lay out our strategy for the remainder of the week in more detail.

The backwardation (skew toward the front month) we’ve been seeing in SPY options implied volatility is finally beginning to resolve to a more normal expiration-week IV profile. Yet, the software simulator we use shows that we have little to lose, and possibly a significant amount to gain, by keeping our remaining May SPY positions open into Friday afternoon. I’m no fan of brinksmanship, but if that’s what it takes to maximize profit potential, and doesn’t entail undue risk, we’ll let our positions play out to the end.

(Members note that anyone who is concerned about risk, or needs to free up capital, wouldn’t do badly if he or she were to flatten out the May SPY positions this afternoon. We’re currently showing an unrealized loss of about 10%, which is acceptable considering the fact that we might expect to recover that much in a normal month.)

Regarding the XLE Supplemental Trades portfolio, as long as the share price keeps rising (but not too quickly), the mathematical model predicts a smaller loss if we hold on until Friday afternoon. But if XLE drops back to around $74 and stabilizes there, we’ll want to take off the rest of our positions. On the other hand, a sharp drop, to the vicinity of $71, would be very beneficial (again, according to the mathematical model).

As always, I’ll do my best to give at least an hour’s advance notice of any trade alert.