Weekly Iron Condor Trade #1 (Part 2)

I previously described my trading plan for a new weekly iron condor (IC) strategy. I also explained how the put vertical was closed for a loss on June 5, which was the first time I attempted the strategy. I threw the challenge flag and after further review, THE CALL ON THE FIELD WAS REVERSED!

I can assure you that does not happen too often.

Unfortunately while I lived to see another day, the contingent order to close was again triggered at 1:30 PM on Monday. This order was based on a spread midprice > $1.70. Once I received e-mail notification for the trade just a couple minutes later, I logged into my account only to see a mark of $1.20 for the spread and the order filled at $1.15.

What?!

I had a second challenge flag ready to throw.

I called my brokerage and spoke with another trading desk representative. He said he has seen the bid/ask spreads widen dramatically for just a few moments on numerous occasions. For this reason he advised me to never set a contingent order based on spread price. I protested, saying this would make sense during the first 15 minutes of the day when chaos abounds (Friday’s occurrence). This should never happen in a relatively calm period like we were having on Monday. I once again asked for time and sales to see what the spread price was at the time this order was triggered.

I saw the report. This time, the call on the field was confirmed.

The customer service rep suggested rather than entering a contingent order based on spread price, I should calculate how low or high the market would need to move to cause the spread to hit max loss. I could then set alerts so I would know something needed to be done.

This trade lost 2.3% (based on gross margin) in 10 days.