Hedged the Condors

by Ryan Barr on May 7, 2010

in Economics,Investing,Options Trading,Papermoney

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!

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