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I am writing this just before the market closes today; the Russell 2000 index (RUT) stands at $494.03.
I closed the remaining put spreads of my July iron condor today. You may recall we established this trade on June 12 and closed the calls yesterday for a $2,800 profit. With the market's upward action today, I was able to close the put spreads for $2.20, for a $1,500 loss; thus our condor achieved a net gain of $1,300 on 20 contracts, or 9.8% in 12 days. Now, you may wonder why I closed the puts so aggressively when the market was moving away from those spreads. The answer is: whenever I close one half of a condor, I am especially aware that I now am exposed to the market continuing to move in that direction. When I have both my call and put spreads in position, and the market moves strongly downward, my puts are in trouble, but my call spreads are becoming more profitable and hedging my position, i.e., they are softening the blow to my profit/loss. But once I close those calls and take my profit on that side, I am exposed if the market continues downward, so I am aggressive in closing the remaining position in these situations. And 10% in 12 days is nothing to scoff at. At the beginning of this trade, we planned to be in the trade for about two weeks; as it turned out, that was a good prediction.
In the meantime, our iron butterfly at 450/480 and 530/560 stands at about $800 of profit, delta = $33 and theta = $121. Our theta/delta ratio is back above 3:1, a good spot. So we will continue to hold this position.
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The RUT gapped up at the open today and I closed the 560/570 call spreads on our July condor for $0.45, for a gain of $2,800. At the close, we could have closed our 460/470 put spreads for a small net profit on the condor. I will watch the market carefully and close these put spreads if the RUT drops further. I will consider adding a calendar at the short $470 strike as a hedge to allow us to hold this position longer.
The position delta on our 450/480 530/560 iron butterfly has risen to $41 but our theta has risen slightly to $111, with the ratio still over 2:1. We will continue to hold this position.
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At the time of this writing, the CBOE has not yet posted the settlement value for RUT (the Russell 2000 Index). However, RUT ranged form $510 to nearly $518 today, so we can be assured our iron condor spreads at 410/420 and 570/580 will expire worthless tomorrow. So our June iron condor was closed at a $4,600 gain on $15,600 of capital at risk for a 29% return. Now, this return is a bit on the high side because we initiated 380/390 put spreads and rolled those up to 410/420; so this augmented the returns a bit as did the fortunate circumstances that allowed us to carry the position into expiration, adding to the gains. See my blog from June 6 for the details of this position and its history.
Our July iron condor is in good shape, with a position delta of -17 (see my blog from Friday, June 12 for the details of this position).
I also initiated an iron butterfly today on RUT, with 5 contracts of the 450/480 put spreads for a credit of $4.35 and 5 contracts of the 530/560 call spreads for a credit of $7.10. I positioned this toward the downside because I am feeling bearish about this market; my position delta is a negative 55. If I am wrong, I will either be adjusting or closing the call side very quickly. You can "lean" your condors and butterflies one way or the other; but be aware that you are reducing your safety margin on one side of the trade and must be prepared to adjust or close quickly. Don't get into an "I'm sure I'm right" game with yourself and get in trouble if it moves against you.
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Today the markets dropped significantly with the RUT dropping nearly $20 to close at $492.81. Our July condors at 460/470 and 560/570 (See June 12 for details) now have a position delta = $91. Since theta = $105, this is getting a little out of our sweet spot. I will be looking to close the call spreads early tomorrow and will then watch the put spreads closely for an exit opportunity. When you close one side of a condor, you are now exposed if the market continues to move against you, so be very cautious. At today's close, I could still close the puts for less than double the intiial credit, so it isn't out of hand yet.
The iron butterfly we initiated Friday is in an excellent position; the position delta moved from a negative 55 to a positive 21, so we are now even more delta neutral than on Friday. Our theta here is over $105, so this is a much better theta/delta ratio. We will continue to hold this position.
If the S&P futures are looking strong tomorrow morning, I will look to close my call spreads on the condor and possibly even the butterfly in the first few minutes of the market.
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The Russell 2000 Index (RUT) closed at $507 today. This is near perfect positioning for our June iron condor with spreads at 410/420 and 570/580. Each of the short strikes are over seven standard deviations away from the current index. Barring a $30 to $40 move in the RUT tomorrow, we will allow these spreads to expire worthless. This saves us about $300 in remaining time value and commissions on this position. However, that is not sufficient savings to incur much risk at all. Which is why we would often have closed our condors before now. But we now only have one full day of trading and Friday morning's opening left in front of us and yet we have several standard deviations of safety margin. Hence, the rule: if we have less than two standard deviations of safety margin on either spread on the Friday before expiration, close the spreads on that side.
Our July iron condor on RUT at 460/470 and 560/570 is in good shape, with a position delta of 11. We want to keep our position delta low because this is a measure of how much gain or loss our position will incur with each dollar move in RUT. Position delta helps us monitor and quantify the risk of our position due to price movement in the underlying index.