dan sheridan adjust condors in volatile market

Sheridan Options Mentoring, Inc.www.SheridanMentoring.com

Adjusting Condors Adjusting Condors in a Volatile Marketin a Volatile Market5 Different Adjustment Ideas!5 Different Adjustment Ideas!

Dan SheridanDan Sheridan’’ss

May 14, 2009May 14, 2009


The views of third party speakers and their materials are their own and do not necessarily represent the views of Chicago Board Options Exchange, Incorporated (CBOE). Third party speakers are not affiliated with CBOE. This presentation should not be construed as an endorsement or an indication by CBOE of the value of any non-CBOE product or service described in this presentation.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. The information in this presentation is provided solely for general education and information purposes. Any strategies discussed, including examples using actual securities and price data, are strictly for illustrative and educational purposes. In order to simplify the computations, commissions and other transaction costs have not been included in the examples used in this presentation. Such costs will impact the outcome of the stock and options transactions and should be considered. Investors should consult their tax advisor about any potential tax consequences. No statement within the presentation should be construed as a recommendation to buy or sell a security or to provide investment advice.

Multiple leg strategies involve multiple commissions charges. Brokerage firms may require customers to post higher margins than the minimum margins specified in this presentation.

AcknowledgementScreen shots of OptionVue 5 Software courtesy of OptionVue Systems International. www.optionvue.com

DisclaimerDisclaimer


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RUT May CondorRUT May CondorDate: 4/15/2009Date: 4/15/2009 Price: $460.94Price: $460.94


Adjustment #1 Adjustment #1 RollingRollingadjustment in a Trending Marketadjustment in a Trending Market

Date: 4/15/2009Date: 4/15/2009 RUT Price: $460.94RUT Price: $460.94

Delta -5.5Gamma -1.3Theta 76.0Vega -96.9

Options Price IV Trade520 Calls $5.00 42.5% +10510 Calls $6.80 42.9% ‐10400 Puts $5.90 52.0% ‐10390 Puts $4.50 53.1% +10

MAY(30)

Credit 3,170$


What is the margin?What is the margin?Date: 4/15/2009Date: 4/15/2009 RUT Price: $460.94RUT Price: $460.94


Why is this an adjustment point?Why is this an adjustment point?Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06

Options Price Delta IV Trade520 Calls $6.10 22.20 39.7% +10510 Calls $9.00 30.70 40.4% ‐10400 Puts $1.30 -4.50 61.2% ‐10390 Puts $0.95 -3.37 63.1% +10

MAY(16)


Credit 3,170$ Loss (80)$


Bad Neighborhood?Bad Neighborhood?Date: 4/29/2008Date: 4/29/2008 RUT Price: $491.06RUT Price: $491.06


Why roll up 12 call spreads?Why roll up 12 call spreads?Why roll up only 5 put spreads?Why roll up only 5 put spreads?



After Adjusting

Options Price Delta IV Trade New540 Calls $2.35 10.4 38.2% +12530 Calls $3.90 15.6 38.8% ‐12520 Calls $6.10 22.2 39.7% +10 ‐10510 Calls $9.00 30.7 40.4% ‐10 +10440 Puts $4.00 -13.9 51.1% ‐5430 Puts $2.95 -10.6 53.2% +5400 Puts $1.30 -4.5 61.2% ‐10 +10390 Puts $0.95 -3.4 63.1% +10 ‐10

MAY(16)

New Credit 2,250$ Loss (80)$


How did adjustments affect our deltas?How did adjustments affect our deltas?Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06


After Adjusting

Options Price Delta IV Trade540 Calls $2.35 10.4 38.2% +12530 Calls $3.90 15.6 38.8% ‐12520 Calls $6.10 22.2 39.7%510 Calls $9.00 30.7 40.4%440 Puts $4.00 -13.9 51.1% ‐5430 Puts $2.95 -10.6 53.2% +5400 Puts $1.30 -4.5 61.2%390 Puts $0.95 -3.4 63.1%

MAY(16)

New Credit 2,250$ Loss (80)$ Delta -73.6

Gamma -2.6Theta 107.5Vega -65.9

Before Adjusting


Philosophy of adjustments?Philosophy of adjustments?


How did we get our dough?How did we get our dough?Did price or time help us?Did price or time help us?



MAY(8)


Credit 2,240$ Profit 1,054$


Should we have stayed in?Should we have stayed in?Date: 5/7/2009Date: 5/7/2009 RUT Price: $492.95RUT Price: $492.95


Always a consequence to our Greed!Always a consequence to our Greed!Date: 5/8/2009Date: 5/8/2009 RUT Price: $511.41RUT Price: $511.41


MAY(7)




Adjustment #2 Adjustment #2 Buy calls next month outBuy calls next month out--best in volatile 2 way marketbest in volatile 2 way market




MAY(30)

Credit 3,170$


RUT Iron CondorRUT Iron CondorDate: 4/15/2009Date: 4/15/2009 RUT Price: $460.94RUT Price: $460.94


Adjustment time, why?Adjustment time, why?Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06



MAY(16)



Welcome to the Bad neighborhood!Welcome to the Bad neighborhood!


Which call to buy?Which call to buy?Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06

Options Price Delta Trade Price Delta Trade540 Calls $2.35 11.5 $11.80 26.6530 Calls $3.90 16.9 $14.80 31.2520 Calls $6.10 23.6 +10 $18.40 36.1 +1510 Calls $9.10 31.8 ‐10 $22.30 41.1400 Puts $1.35 -5.1 ‐10 $6.70 -14.2390 Puts $1.05 -3.8 +10 $6.00 -12.0

MAY(16) JUN(51)

Credit 1,329$ Loss (130)$ Delta -34.2

Gamma -1.7Theta 68.0Vega 6.2

After AdjustingDelta -70.3Gamma -2.2Theta 96.3Vega -64.0

Before Adjusting


There is a consequence, but we There is a consequence, but we are trying to stay in the trade!are trying to stay in the trade!



Why at 2Why at 2ndnd adjustment point?adjustment point?Date: 5/4/2009Date: 5/4/2009 RUT Price: $498.12RUT Price: $498.12

Options Price Delta Trade Price Delta Trade530 Calls $3.40 17.5 $15.20 33.6520 Calls $5.70 25.8 +10 $18.90 38.8 +1510 Calls $9.10 36.7 ‐10 $23.30 44.3400 Puts $0.60 -2.4 ‐10 $5.00 -11.6390 Puts $0.45 -1.8 +10 $4.50 -9.7

MAY(11) JUN(46)

Credit 1,329$ Loss (331)$ Delta -62.9


Before Adjusting


Why buy the 530 call?Why buy the 530 call?Date: 5/4/2009Date: 5/4/2009 RUT Price: $498.12RUT Price: $498.12

Options Price Delta Trade Price Delta Trade New530 Calls $3.40 17.5 $15.20 33.6 +1520 Calls $5.70 25.8 +10 $18.90 38.8 +1510 Calls $9.10 36.7 ‐10 $23.30 44.3400 Puts $0.60 -2.4 ‐10 $5.00 -11.6390 Puts $0.45 -1.8 +10 $4.50 -9.7

MAY(11) JUN(46)

Debit (192)$ Loss (331)$ Delta -62.9


Before AdjustingDelta -29.3Gamma -1.2Theta 67.1Vega 85.2

After Adjusting


Trying to smooth out the curveTrying to smooth out the curveDate: 5/4/2009Date: 5/4/2009 RUT Price: $498.12RUT Price: $498.12


Are we in trouble again?Are we in trouble again?Date: 5/8/2009Date: 5/8/2009 RUT Price: $509.51RUT Price: $509.51

Options Price Delta Trade Price Delta Trade New540 Calls $1.50 12.8 $13.10 32.4530 Calls $3.20 21.9 $16.90 38.1 +1520 Calls $6.20 34.8 +10 $21.10 43.9 +1510 Calls $10.70 50.0 ‐10 $26.00 49.8400 Puts $0.10 -0.5 ‐10 $2.45 -7.6390 Puts $0.10 -0.3 +10 $1.90 -6.1

MAY(11) JUN(46)

Debit (192)$ Loss (892)$ Delta -67.7

Gamma 0.2Theta 36.5Vega 116.0

Before Adjusting


Why the 540 call?Why the 540 call?Date: 5/8/2009Date: 5/8/2009 RUT Price: $509.51RUT Price: $509.51

Options Price Delta Trade Price Delta Trade New540 Calls $1.50 12.8 $13.10 32.4 +1530 Calls $3.20 21.9 $16.90 38.1 +1520 Calls $6.20 34.8 +10 $21.10 43.9 +1510 Calls $10.70 50.0 ‐10 $26.00 49.8400 Puts $0.10 -0.5 ‐10 $2.45 -7.6390 Puts $0.10 -0.3 +10 $1.90 -6.1

MAY(11) JUN(46)

Debit (1,502)$ Loss (892)$ Delta -67.7

Gamma 0.2Theta 36.5Vega 116.0

Before AdjustingDelta -35.3Gamma 0.7Theta 9.0Vega 179.9

After Adjusting


Sea of Death?Sea of Death?Date: 5/8/2009Date: 5/8/2009 RUT Price: $509.51RUT Price: $509.51


Adjustment #3Adjustment #3-- No adjustmentNo adjustmentget out when down around 12%get out when down around 12%




MAY(30)

Credit 3,170$


Should we leave early Honey?Should we leave early Honey?Date: 4/27/2009Date: 4/27/2009 RUT Price: $469.68 RUT Price: $469.68


MAY(18)


Credit 3,170$ Profit 570$


Upside will take our dough!Upside will take our dough!Date: 4/27/2009Date: 4/27/2009 RUT Price: $469.60RUT Price: $469.60


I am hurting psychologically now!I am hurting psychologically now!Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06

Options Price IV Delta Trade520 Calls $6.10 39.8% 23.8 +10510 Calls $9.10 40.6% 31.9 ‐10400 Puts $1.35 61.3% -5.3 ‐10390 Puts $1.10 65.0% -4.0 +10

MAY(16)




Hello Bad Neighborhood!Hello Bad Neighborhood!Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06


Have to get out! Why?Have to get out! Why?Date: 5/4/2009Date: 5/4/2009 RUT Price: $501.23RUT Price: $501.23


Options Price IV Delta Trade520 Calls $6.50 39.5% 28.3 +10510 Calls $10.20 40.6% 39.7 ‐10400 Puts $0.55 68.1% -1.9 ‐10390 Puts $0.35 68.8% -1.4 +10

MAY(11)

Credit 3,170$ Margin 10,000$ Required 6,830$ Loss (730)$

Down almost 11%Down almost 11%


We want to trade next month!We want to trade next month!Date: 5/4/2009Date: 5/4/2009 RUT Price: $501.23RUT Price: $501.23


Adjustment #4Adjustment #4 Roll plus adding long call Roll plus adding long call in the next monthin the next month




MAY(30)

Credit 3,170$


Why the June 550 call?Why the June 550 call?Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06

Options Price Delta Trade New Price Delta Trade New550 Calls $1.35 6.6 $9.30 21.7 +1540 Calls $2.35 10.5 +12 $11.80 26.1530 Calls $3.90 15.6 ‐12 $14.80 30.8520 Calls $6.10 22.2 +10 ‐10 $18.30 35.8510 Calls $9.00 30.6 ‐10 +10 $22.30 41.0400 Puts $1.30 -4.5 ‐10 $6.70 -13.5390 Puts $0.95 -3.4 +10 $5.50 -11.3

MAY(16) JUN(51)

Credit 1,166$ Loss 80$



Remember, Philosophy of adjustments?Remember, Philosophy of adjustments?Date: 4/29/2009Date: 4/29/2009 RUT Price: $491.06RUT Price: $491.06


How did we make money?How did we make money?Date: 5/7/2009Date: 5/7/2009 RUT Price: $492.95RUT Price: $492.95

Options Price Delta Trade Price Delta Trade550 Calls $0.40 2.2 $7.20 18.9 +1540 Calls $0.75 4.8 +12 $9.50 23.5530 Calls $1.55 9.2 ‐12 $12.30 28.6400 Puts $0.20 -1.2 ‐10 $4.30 -10.5390 Puts $0.15 -0.8 ‐10 $3.40 -8.5

MAY(8) JUN(43)

Credit 2,296$ Profit 976$



Peril is on the upside!Peril is on the upside!Date: 5/7/2009Date: 5/7/2009 RUT Price: $492.95RUT Price: $492.95


Adjustment #5Adjustment #5-- scale outscale outDate: 4/15/2009Date: 4/15/2009 RUT Price: $460.94RUT Price: $460.94



MAY(30)

Credit 3,170$


Down 10% take off 1/3 of bad sideDown 10% take off 1/3 of bad sideDate: 4/15/2009Date: 4/15/2009 RUT Price: $460.94RUT Price: $460.94


Down 15% take off another 1/3Down 15% take off another 1/3Date: 4/15/2009Date: 4/15/2009 RUT Price: $460.94RUT Price: $460.94


At short strike take off remaining spreadsAt short strike take off remaining spreadsDate: 4/15/2009Date: 4/15/2009 RUT Price: $460.94RUT Price: $460.94


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CBOE's Options Institute, when they explore ways to realize consistent income from your "off-floor" options trading.

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dan sheridan adjust condors in volatile market

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