Weekly Iron Condor Trade #4

On June 24, 2015, I placed my fourth weekly iron condor trade. I placed this order at the midprice (10:41) and caved 0.05 over three minutes (filled 0.10 off the then mark).

The market fell 2.5% over the next five days, which forced me to close the put spread for $2.20. This trade lost ~9%.

I found this trade disappointing because I do not consider 2.5% to be a large market move. This is one or two big down days or perhaps even one really big down day. Volatility definitely hurt me as VIX increased from 12.16 to 17.62. The market was 60 points away from my short strike at trade exit. I could have remained in the trade but another big down day could have halved my margin of safety and forced me to close for a larger loss, etc.

Debating the pros and cons of particular option trades can always be done. No right answer exists. If I hold on longer then I win a greater percentage of the time but my average win/loss ratio is worse.

Bottom line: I have my trading plan and I’m sticking with it. This is most important. I want to understand how this trade does over the long-term so I don’t want to try and optimize any one trade. For any single trade, I can always point at one or two things that would have markedly changed the outcome. This is unfair and unrealistic, though, because making the same tweaks of all other trades would have an impact on them, too… and not all for the better.

Having said all this, I do need to address one trading error. This trade should have been placed in the JulWk1 series but I placed it as a JulWk2! This might be significant as I would expect vega to be higher with more time to expiration.

At trade inception, I found vega to be about -45 for both. Delta was more negative for the shorter-dated position but theta was greater as well. A quick backtest revealed a similar outcome either way.