In my previous post, I went over the basics of our calendar-spread income strategy. Now let's look deeper into...
In another month of fast-moving, trending price action—one of the two worst scenarios for the Calendar Options strategy (the other being a plunge in implied volatility)—we were able to come away with only a small average loss. We played it cautiously from the beginning, expecting the resumption of the bear market to keep price volatility high throughout the cycle. Consequently, we entered just two trades for July.
We had to make one adjustment by the time July rolled around, but…
We were hoping again this month that we’d be able to roll out the short options in our EEM calendar spread instead of closing the position entirely. But between the sour mood on Wall Street, a lot of economic data coming out next week, and second-quarter earnings announcements picking up, trading is likely to be even more volatile than in a “normal” expiration week.
Bearing in mind that good risk management is essential, we’re closing our entire position, as follows:…
We’re taking advantage of the fact that IYR’s share price is exactly at the sweet spot for our adjusted calendar spread and closing the position. We want to scale back our risk prior to expiration week (our EEM position is still open), and at the price below, we’ll have a 6% profit–not too bad for less than two weeks in a volatile market.
Here’s the order we’re placing this afternoon:
Day limit order
Sell to close 2 IYR August…
Yesterday we were blindsided by an explosive end-of-day rally in IYR. The gain for the day was a whopping $4.21–that’s more than 3½ times IYR’s one-day standard deviation (which means the statistical probability of such a huge one-day move is less than 0.02%). Short-covering probably was a big factor in the size and speed of the rally…but regardless of the whys and wherefores, the market erased a week and a half’s losses in a matter of hours.
IYR has lost…
Earlier this morning, we described how our IYR July/August 61 calendar spread came under pressure yesterday. The share price fell in the first five minutes of trading today, but then it began to rally, making us reluctant to adjust the trade. The rally didn’t go very far, but we decided to sit tight until after the release of the May pending home-sales numbers.
And then,…nothing happened. Although pending home sales fell more in May than analysts had expected, the…
We expected EEM to give us trouble yesterday, but IYR was supposed to be a different story. It had closed last Thursday more than 1.5% above our adjustment point, with support from its March low standing in between. The ETF had been declining at the relatively civilized rate of about 1% per day, so it hadn’t given us much cause for concern…until yesterday.
IYR’s share price continued on its reasonable glide path until shortly after noon, when a number…
After a failed attempt to rally, EEM is down almost a dollar from Thursday’s close. Of the four options we discussed in this morning’s update, rolling our remaining 140-strike position to 130 is looking best right now, because it buys us a little more room on the down side without hemming us in on the up side.
Here’s the trade we’re making this afternoon:
-2 EEM Sept 140 put
+2 EEM July 140 put
for a net…
Last week the market continued lower despite being deeply oversold, putting one of our Calendar Options positions in adjustment territory for the second time. It’s been a wild ride for EEM: After a decline of more than $3 Wednesday, the ETF dropped another $1.50 in early trade Thursday morning, to a low of $127.92, then rallied back above $130 before retreating again with the rest of the market.
IYR fared better last week. Even though the real-estate ETF fell along…
We talk a lot about why adjusting iron condors is rarely, if ever, a good idea, and adjustment decidedly is not a part of the Condor Options strategy. So you’re probably wondering, why all these Calendar Options posts about adjustments? The answer is simple—calendar spreads are not like iron condors.
A quick review: As we explained in Part I of this series, our decision to adjust calendar spreads is based on the same criteria as our decision not to…
With markets sharply down this morning, we want to extend the profit range of our EEM July/Sept calendar put spread to the down side by rolling half of our position at 140 to a put calendar spread at 130, as follows:
-2 EEM Sept 140 put
+2 EEM July 140 put
for a net credit of $3.80;
+2 EEM Sept 130 put
-2 IBM July 130 put
for a net debit of $4.40.
Again, the two-contract…
Thursday, June 2, 2011
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