Condor Options

With just three trading days left until September expiration, and our portfolio showing about a 12% return on total capital at risk, we’re going to avoid the risks of late-expiration-week trading by closing our keystone position for the month, as follows:

Day limit order
Buy to close 2 SPY Sep 122 calls
Sell to close 2 SPY Oct 128 calls
Buy to close 2 SPY Sep 111 puts
Sell to close 2 SPY Oct 105 puts
for a net credit of $2.12 or better.

Note that the 2 contracts above represent our entire position in the Sep/Oct 105/111/128/122 double-diagonal. We’re leaving the adjusted hedge position (Sep 101/108/128/135 iron condor) to expire worthless.

Bonus Trade

This month’s double-diagonal is wide enough that instead of closing all four legs, it’s reasonable to consider rolling the short legs out to October and take in more credit. The following bonus trade would result in an October SPY 105/107/126/128 iron condor:

Buy to close 2 SPY Sep 122 calls
Sell to open 2 SPY Oct 126 calls
Buy to close 2 SPY Sep 111 puts
Sell to open 2 SPY Oct 107 puts
for a net credit of about $2.89.

Note that, as a “Bonus Trade”, this order will not be autotraded, nor will there be any follow-up action. Members who aren’t experienced with managing iron-condor risk on their own should not follow this bonus trade (except perhaps as a paper trade). Also note that the resulting iron condor is entirely separate and independent from the Condor Options newsletter portfolio.

The above bonus trade results in the following portfolio risk profile:

With the current month’s gain, this follow-on has effectively no risk; however, we wouldn’t be in business if we routinely gave up our profits out of sheer laziness. So it makes more sense to manage this bonus trade as a new position. After subtracting the profit from our Sep/Oct double-diagonal, we get the risk profile shown below:

Subscribers to our iron-condors newsletter will recognize this almost precisely matches our target profile. Initial delta is slightly negative, at approximately –1.2% of capital at risk, and vega is in the same range, at about –1.5%. With no further action, this trade has about a 53% chance of expiring with a profit—but our strategy calls for managing risk by entering additional iron-condor trades as the market moves, and hedging delta with a synthetic stock position at the end of every week.

Bottom line, again: This bonus trade is for educational purposes only, and only for the consideration of members who have the knowledge and experience to manage the risk it carries.