I would like to point out a couple of charts today and then offer a suggestion for a possible trade adjustment. First, I found it interesting where the market closed today - see the 30 day chart on the left. Clearly broke through 135 but was met with a lot of selling pressure as soon as it saw levels not seen since Feb.


Also, check out this site for this weeks upcoming announcements which may have an impact on your trading. http://biz.yahoo.com/c/e.html

One final thought: there is nothing that says that the Fed, nor the market need act rationally. If the market is in fact making a turn around, if even temporary, don't fight it - you won't win. Be flexible, admit if you were wrong and fix it. That said, I continue to recommend probability trades. Trading the news, which is what the markets are trading on right now, is almost impossible. So, let's look at some iron condors and credit spreads that will allow you to profit from a such a volatile market.

Let's say that you took my previous advice (March 8th post) of selling 140 calls and buying 143 calls for a net credit of $350. My current recommendation is to do nothing. I think the market will pull back some in the near future, plus it has a lot of resistance to overcome before it gets to 140. Of course, we would want to roll up before it gets too close. This would be a slightly riskier play.

If you want to play it super safe do the following: on the next pullback, buy back the 140 calls that you sold and sell the 143s. Now, (or wait a day, it's up to you) sell the 143s and buy the 146s. See below.

Breakdown (right now we're just focusing on the call credit spread portion of the IC):
Cost Basis (what our original position was)
Sell 140 Calls @ 0.70 --> $700
Buy 143 Calls @ 0.35 --> $(350)

Price (current)
Buy back the 140 Calls @ 1.15 --> $(1,150)
Sell the 143 Calls @ 0.43 --> $430

So where does this leave us? We have 'locked' in a $370 loss....but we're not done.
Note: you could cut your losses here - that is perfectly okay. Remember that a trade adjustment is a new trade. If you're completely befuddled as to how the position moved against you, just cut your losses and live to fight another day.

Sell 143 Calls @ 0.43
Buy 146 Calls @ 0.12

This results in a net credit of $310, for a total loss of only $60. While a loss isn't ideal, it sure beats losing the $2,690 at risk. By the nature of this strategy, you should expect to break-even / incur small losses for 2-3 months out of 12. That's why this is a probability play. And you're not completely out of the woods - as the price could always continue upward. With each adjustment, you decrease your credit and increase your risk.


At this point we could stop tinkering, since commission fees DO exist. Or we could go one step further. Remember the put spread we sold for a net credit of $320, we can roll it up for additional profit.

Breakdown (now we're just focusing on the put credit spread portion of the IC):
Cost Basis (what our original position was)
Sell 116 Puts @ 1.03 --> $1030
Buy 113 Puts @ 0.71 --> $(710)

Price (current)
Buy back the 116 Puts @ 0.24 --> $(240)
Sell the 113 Puts @ 0.14 --> $140

So where does this leave us? We have 'locked' in a $220 gain. You could stop here,or.....

Sell 125 Puts @ 0.90 --> $900
Buy 122 Puts @ 0.57 --> $(570)

This gives us an additional gain of $330.

In conclusion, we started with an iron condor that yielded a $670 credit. If you felt like you were getting pinched you could have executed the above strategy for a new total credit of $160 (220-60) + $330 = $490. Not as good as a credit of $670 but good capital preservation none the less (actually capital preservation + $490 + invaluable experience in trade adjustments). Previously, I eluded to commissions which can become costly if you do too many adjustments. That's why ideally, positions are put on deep OTM (for example, with a delta of 0.07). More than anything this has merely been an example of a trade adjustment. Personally, I think it's too early to panic, with regards to upside risk; however, hopefully this example will better prepare you should the position at any point exceed your risk tolerance. One final note, due to the effects of gamma close to expiration, it is always recommended to close out your position prior to expiration (i.e. 7-10 days) unless it is astronomically OTM, then just let it expire (to avoid commissions)

Here's the other chart I promised: