Condor Options

Volatility was back today. . .for how long, we don’t know—but for the time being it’s giving our Calendar Options portfolio a boost. Price strength in the equities underlying our trades, and the drop in perceived risk that accompanied it, had us temporarily on the defensive. But now one of our positions is closing in on our initial profit target, and the others are well-placed for a comeback. Here are the details:

EEM – After three weeks and one adjustment, our EEM June/Sept calendar spread is showing a profit of about 12%. Our strategy targets 15% profit when we open with a double-calendar, so we might be looking to unwind this position by the end of the week if EEM stays between $149 and $154.

IBM – IBM rallied past the upper break-even point of our initial, single-calendar spread last week, putting the trade significantly in the red and triggering an adjustment. But the stock started to sell off in the final hour of trading on Friday and dropped another $2 today. Our adjusted position is now profitable again, and with the stock closing at $127.36, we’re right where we want to be.

RTH – This trade has been a bit disappointing so far, but it still has a very good chance of becoming profitable. A shift in volatility skew from the July options to the front month, not to mention a drop in average implied volatility, had the adjusted position down in our stop-loss range of -15% to -20% last week—but the price of RTH was in a place where we felt the odds favored staying in the trade. As of today’s close, our loss has been trimmed to less than 10%, and if RTH continues to trade in the $93 to $97 range, we’ll be profitable by expiration week.

Measuring Performance

Note that whenever we talk about percentage returns, we always give you the actual return on capital risked. This means that our profit calculation includes the loss (or gain) realized in any adjustments, and we include in our basis calculation the additional debit (or credit) that any adjustments may require. (Of course, commissions are not factored in, since they vary.) And, we always include every trade, both the winners and the losers, in our performance history. No smoke and mirrors here, folks—just straight-up reality.