I decided to hedge off both the IWM and SPY condors today to ensure profitability should we get a substantial drop over the weekend.  Upside risk is negligible at this time, and quite frankly the hedge on IWM wasn’t really needed yet…- I’m simply playing it safe.

The trades are as follows:

• BOT 25 SPY 100 MAY 10 108 PUT @ 1.90
• BOT 50 IWM 100 MAY 10 59 PUT @ .59

The SPY hedge is a little late as my existing short strike on the SPY trade is 112, I should have hedged this off on Monday and Tuesday when I was working the rest of my real money accounts.  That was my mistake.  No worries though, these hedges will protect from downside risk, and worst case the SPY trade turns out to be a slight loser.  Also, the strike I used may have been a touch to close, a further OTM option would have provided possibly more protection due to a larger volume of contracts for the same outlay.

The IWM hedge is really to protect from a MAJOR market collapse in the next few days.  The short strikes are at 63 for this condor, so there isn’t a ton of risk here with the IWM currently at about 65.5 – however there is enough risk that I don’t want to be unprotected!  Time decay is going to start to pick up rapidly in the next week or so, so these hedges will be very short term.

My personal opinion is that we are going to see continued weakness in the market. There will likely be a rally in the next few trading days to consolidate the losses, however I would not be at all surprised to see the Dow, S&P and Nasdaq all down again next week and throughout the month. Greece is a power-keg that is ready to explode and the Euro zone is going to be in big trouble when/if that happens.  The old adage of sell in May and go away is really holding true!

Wow!  The High Frequency Algorithms sure made a mess of the Dow today!  Currently my IWM condors are looking very good and have lots of room for the ETF to float around up and down.  The SPY position is a little closer to having some issues, so I’m going to either hedge off some of the risk, or simply capture profits. I’ll post an update depending on the market activity tomorrow and what I decide to do.

I was filled for an additional 25 contracts to the May 2010 IWM(82.68 +0.00) Iron Condor position in the paper money account.  This time the fill was for $0.55 credit, a reasonable premium to the original position.  I’ve gone ahead and adjusted my strike prices for the SPY(134.45 +0.00) order that is outstanding; these have been moved to 124/126/112/110 for a $0.50 credit, this order may fill if implied volatility spikes up nicely.

As of this evening the IWM position is profitable to the tune of a whooping $12.50! As with any position with 44 days till expiration, I’m not expecting much from it today. As you can see from the risk profile on the left, this position won’t do much until late April into Early May.  At that point, assuming the IWM hasn’t moved much I may unwind to remove risk and capture a nice return on capital at risk ($15,000).

It’s time to let time do its magic work.

As expected my SPY(134.45 +0.00) order didn’t fill today and the IWM(82.68 +0.00) did.  I’ve placed an order for an additional 25 contracts of the IWM condor at $0.55 credit; if these fill I will be quite happy with that price.  Here is the trade:

SOLD -50 IRON CONDOR IWM 100 MAY 10 73/75/63/61 CALL/PUT @.50

Here is a bit of analysis on the trade.  The strikes are based primarily on the standard deviation of the IWM.  I’ve highlighted the trade range on the image to the right and you can see in the profit graph below that my break even points (including commissions) are slightly outside of 1 σ move down, and just inside a 1 σ move up. For those of you that are now slightly confused, the lower case Sigma, or σ, is a symbol that represents the standard deviation.

These probabilities are based upon the price at May expiration of the IWM.

The probable range of prices IWM will touch between now and then is quite a bit higher; between about 60 to roughly 77.  This is a risk that will have to be managed as we move along and the IWM moves up and down.  My intent is to adjust as little as possible and just let the greeks do their work.  However, should adjustment become necessary, I am not adverse to getting my hands dirty!

Now that I’ve finally gotten everything closed out, it’s time to get the Condors rolling.

I’ve thrown two orders out into the papermoney portfolio for a 50 lot Iron Condors on the IWM(82.68 +0.00) and the SPY(134.45 +0.00).  The IWM Condor should get filled fairly quickly, however the SPY has been put in well above the market/mid price and likely won’t get filled.

Here are the quick details on the orders:

• IRON CONDOR SPY 100 MAY 10 124/126/109/107 CALL/PUT @ .50
• IRON CONDOR IWM 100 MAY 10 73/75/63/61 CALL/PUT @ .50

Both of these positions sit about 1 standard deviation away from the current price of the underlying and provide a fairly healthy return on capital at risk.  These are a lot closer than most of the Condors that I’ve put on in the past.  I’m experimenting with getting closer to the underlying to increase the return, while not dramatically increasing risk.  I’m also planning to exit these rather than letting them expire worthless, so only time will tell how things work out.

The size of the order is a little small based upon the risk management strategy that I’m planning to employ in this account.  Right now, these orders will require about $7,500 in risk capital.  I’m planning to allocate around 1/2 of the account across 4-5 positions in a month.  That means that I need to allocate roughly $10,000-$12,500 to each trade.  I’m fishing right now to see what fills, if the IWM position fills, I’ll likely add another 25 or so contacts.

I did throw a few of these out in another account last week, currently they are up quite nicely and appear to be performing as expected.  I’ll post an update once I get fills etc, along with a little more analysis.

*REMEMBER: This is FAKE money… If it goes poof, then who cares.  :) Read the disclaimer on the website, it is VERY important that you read it – period.

I’m a very busy person.  In my real accounts, I keep a very good eye on my money and have been generating handsome returns over the past few years.  Sadly, this hasn’t played out on the paper money account!

Rather than play around with short calls and puts and all of that fun stuff on individual equities; I’m going back to my old habits and I’m going to start to manage a larger portfolio of Iron Condors in the papermoney account. In all honesty… I hate individual equity positions.  They are horribly volatile, subject to firm risk and there is just too much to pay attention too.  With all of those problems, I just don’t enjoy managing money that way…

I’ve put in orders to basically get flat before I open up any of the Iron Condors.  The account will be down roughly 10% from the initial balance of $100,000, so I’ll be starting at a disadvantage.  No worries, that just means that I might have an incentive to pay attention this time!  Back to the indices, and non-directional plays. Sweet!

Remember, this is play money.  It isn’t real.  These trades are not real.  In fact, I am quite prone to ignore this account and about 6 months later start it up again.  Please, make sure to use your own brain to determine how to allocate and manage your money.  This is just for fun, a touch of education, but most definitely not investment advice.

Oh yeah, I’m going to play around with some positions that I would not have normally done in the past.  We’ll see what happens!

Well, it looks like my stop on Ebay was tagged during the trading day today.  Ebay ended the day up, however during the day it dropped just far enough to tag the top and cause me to quickly exit the position.

My short calls are November 25′s, EBay is trading at $22.38 and I’m fairly bearish right now. I’m going to keep the calls as Theta burn is going to kick in hard core here and hopefully ditch them for $0.05 in the next week or so.

I’ll start hunting for some new positions in the next few days as this recent stop sweep has freed up some capital.

With the addition of my CLI shorts the other day, I’m now negative delta (-107.52) (beta weighted to SPY) so that should help out after we run up again early in the week.

I’ll update the papermoney portfolio in a bit, I’ve got to finish watching the game and then go to bed!

Well, the new papermoney portfolio just took a swing through stop central and unloaded quite a few positions, and with some triggered orders I added a few more while I was at it.  Time will tell if the additions do anything good for the portfolio, however I’m getting the sinking feeling in my gut that I am chasing losers here.  As a relatively inexperienced individual equities trader, I’m getting the feeling that I could be chasing my tail with WMS.  I’ll be working some fairly aggressive stops on that one to protect my backside.

FUQI

Well, this is an interesting company and an issue I was hoping to hold on to for a longer period of time.  Unfortunately, I might have been a bit late to the party and I think it is going to cost me a bit of cash.  I remain short my Nov Calls and will monitor the underlying price to manage risk as is needed.  My stop was triggered for 300 shares at 24.86.  After taking a longer look at the chat for FUQI, it is fairly obvious that this issue was showing signs of weakness when I bought it.  Oh well, live and learn.

WMS

I’m a glutton for punishment.  This is an issue that I may regret owning soon enough.  Take a look at the chart and you can see why.  After the earnings announcement, WMS fell through my first 100 share stop at 44.79 and I closed out, then I bought 500 shares on a GTC order from a while back at 43.00.   Currently, this beauty is down to 41.76 a share – and in no mans land.  The only good news today was that the move today was on lower volume, but I’m really reaching for straws at this point.

Fundamentally, WMS is a good company in a great industry – casinos. Lets face it, the economy sucks and it isn’t going to get better anytime soon so the sin industries are a good place to be.  WMS is a high beta stock (1.86) so I expect this one to move around a bit.  My buy order at 43 was well placed when I put it in; today, maybe not so much.  I’m going to give this one a little bit of wiggle room to see what happens as things settle down.  I’ll set a stop to protect myself just in case just below 40.  My real fear with this is that it is working its way back to fill the gap highlighted on the chart.  If that happens, I’ll be out well before we get there and I may be a buyer again at those levels.

CLI

This company appears to be a wreck financially, money is moving away from real estate and well, it appears as though it is getting read to break support.  Given all of those factors, I’m getting ready to short 500 shares of CLI @ 29.90.  If it breaks down, I’ll fill and then sell a bunch of puts at 25 to lock in some additional gains, lower my cost basis and hopefully have this put back to me for a nice little profit.

A few weeks ago I decided to tweak the papermoney portfolio again.  Rather than going for a bunch of option plays on index products, I wanted to simulate some “money management” via positional plays on individual equities and managing risk via index option plays as needed.  The goal with the portfolio is to earn roughly 2-4 percent a month and compound the gains throughout the year.

E-House Holdings

It looks like I was stopped out of E-House holdings today (EJ – chart on right).  This is a Chinese real estate firm that was (and remains) very interesting.  I purchased the shares a little too high, so I’ve paid for that mistake.  I am currently short 5 Calls @ 22.5 and I’m going to keep the calls as I’m a buyer if we can break out to above the 21/22 level and will cover those short calls very quickly with stock.

If you take a look at the chart, you can see that on a longer term basis, EJ is in no-mans land.  There is no good reason to buy here, however I am also a buyer again if we can break the 200 day EMA so I’m putting in an order to sell puts at @15  for a reasonable credit to possibly get put into the position.

Buy selling covered calls and shorting puts to buy stock I am constantly generating income in the portfolio.

I’ve just added a whole slew of option positions into the order queue for my papermoney portfolio.  These are almost all October/November expiration positions that include long put butterflies, short call verticals, long put verticals etc…  I’ll post all of the details depending on the fills that I get.  Basically, I’m winding it up and going for it on the short side.  If I’m really, really wrong on this, it will hurt a lot and it’ll be a huge grind to work the capital back up.  My personal portfolio has a very similar bent with lots of puts, lots of spreads and getting more and more bearish as the days go by.  I’ve been making my money trading /ZC futures, and rolling the profits straight away into bearish SPY(134.45 +0.00) positions.

Anyhow, that is the plan.  The fundamentals of the economy right now appear very, very weak in my eye.  The green shoots are beginning to flake off the green Krylon revealing their underlying brown natural color.  Anyhow, that is just one persons opinion.  It doesn’t look good, and I’m planning to profit from it.