One more day…. Counting down to the Year of Tiger… Here’s wishing all Chinese a very Happy Lunar New Year…. 
and of course, a Happy Valentine’s day to everyone….
New year, new resolutions, new start…. If you have been following my blog, you’ll realize that I’ve changed my theme to a much cleaner one… and in the process, I’ve also removed some of my past posts…. The main reason is I want a new direction for this blog….
From now on, this blog is going to be more like a personal diary that records my journey towards success… It’s going to be more random, recording my ups and downs, achievements and setbacks, trials and errors… it’ll be less geared towards options trading; instead, I’ll post articles related to anything that can make money… I’ll also try to add more educational articles to share what I’ve learnt along the way…. So, stay tuned….
February 13th, 2010 at 2:23 AM
Hi!
In one of your blogs you mentioned something abt having a nagging feeling about the condor. What is that you had in mind??? Its the same blog you posted, in which you mentioned making 1000$ profit in the Condor.
Thanks.
February 14th, 2010 at 1:44 AM
Hi….
I remember that nagging concern…. I was (and am still) worried about those “Black Swan” events…. events that are so unlikely that they are often considered negligible…. Wikipedia defines them as “high-impact, hard-to-predict, and rare events that are beyond the realm of normal expectations.” Examples include the 19 Oct 1987 crash and the Russian Bond default in 1998….
I was reading the book “The Education of a Speculator” by Victor Niederhoffer… I don’t remember what was written in the book to bring on that concern… but I know that these events do happen and can totally wipe out your account… I think LTCM failed because their sophisticated Mathematical Models failed to take such events into account (I don’t really know the details, but that was the impression I got)…
Suppose the 1987 Black Monday is to repeat itself and Dow Jones plunges 23% again on a single day on NO NEWS…. imagine the damage that would happen to iron condors sellers…. Of course, it would be even more catastrophic for people who sold naked puts…. but still, even though iron condors have limited risk… if you have to suffer maximum losses on all your iron condors… it would still be a very ugly situation….
Frankly speaking, I’ve not come up with a solution to this concern yet… So, it’s still bothering me… You have any suggestions???
February 23rd, 2010 at 6:50 AM
Perhaps we could enter a closing order with the broker if the underlying should tank more than 5%/10% at open. Its definately an ugly scenario though.
Alternately, I was thinking of putting stop loss orders in place when exexcuting the condors. (I use TOS).
Still not sure what to do.
February 23rd, 2010 at 1:28 PM
I used to set orders to automatically adjust my iron condors if the stock price falls my sold PUT. Essentially, that involves buying a CONDOR… For instance, suppose I sold a 99/100 PUT spread, if the price falls below $100 (my sold leg), I’ll buy a 96/97/99/100 CONDOR… In other words, I’ll buy back my 99/100 spread and sell a 96/97 spread… Under normal circumstances, that will enable me to exit at breakeven, or even with a small profit.
However, I think this is not a good solution if the stock market really tanks… Cos there is a risk that price will continue to fall below my adjusted sold leg, making it necessary to adjust more than once…. I guess if the market becomes too volatile, I would do what you suggested… just close the position instead of adjusting it….
I suppose there’s no way to really prevent losses in a “Black Swan” event, the only way to avoid blowing my account is to manage my risk and not have too many open positions at any one time…