Condor Options

This morning, we’re following up on three bonus trades that we’ve posted recently. We almost never do this, since these are always just for fun, and we seriously don’t want anyone to actually take any of these positions just because we mentioned them.

Energy ETF (XLE)

Our Energy ETF (XLE) trade, published on Tuesday, has worked out beautifully so far, so let’s start there! XLE fell $2.09 today, or 2.74%. We published three different ways to trade options on this ETF, and all of them have worked out nicely:

• The naked long XLE March 75 puts were $2.65; now they’re $3.00, which is a 13% gain in two days on a very high probability setup.
• The short XLE March 78/80 call spread gave you a credit of $0.54; now, you could buy that spread back for around $0.45, which is a 6% gain on capital risked. But of course you could also hold onto this position for longer, since time is in your favor in this case: if XLE continues downward, you could wait until half the premium has decayed in your favor and exit with an easy 18% return.
• The XLE March 78/April 80 call diagonal cost you $0.30; that same position is now worth $0.36, since your short March 78 call lost almost twice as much value today (in nominal terms) as your long April 80 call. But rather than booking profits, the thing to do now is to wait for a little more decay in that short front month call, and then roll to the April 78 or 76 or whatever strikes your fancy.

When all the technical indicators line up so nicely, these sorts of trades are kind of obvious, so we won’t belabor the point. But people are always asking for followups on these trades, and we aim to please.

Lehman (LEH)

What about Lehman? We posted this idea back on February 9th, and it was a subscribers-only pick. We noted that the stock has traded between 50 and 67 for awhile now, and that since they have an earnings announcement coming up, and that if you’re optimistic about their performance relative to the financial sector, there may be some upside movement to be had.

We mentioned selling the March 45/50 put vertical for a $0.70 credit, for which you can now receive $0.85. This trade still looks nice if you think the stock won’t break support at 50, and there’s plenty of time left in this trade – time decay hasn’t kicked in yet, and the event the trade is predicated on is also still to come, so no reason to bail here.

Nasdaq 100 ETF (QQQQ)

On Wednesday we sent out an unusual-looking iron condor on QQQQ to everyone who is a subscriber or a reader of our free newsletter.  This position is up by 4.4% on capital risked in just one trading day.  Like all iron condors, this position is inherently short vega; interestingly, IV in QQQQ ticked down a bit today (as did $VXN), in spite of the significant selling and increase in volatility on all the other major indexes – though statistical noise is also a factor and you can’t read too much into data points like this.  But if markets continue to chop around or breakout to the upside, this trade should do well.

If you have questions about any of these trades or any other questions, as always, please ask!

[tags] QQQQ, XLE, LEH, trading, options, implied volatility, VXN [/tags]