A small SHLD Iron Condor gets flattened

Discussion in 'Options' started by JavaBen, Nov 8, 2006.

  1. JavaBen


    I put on a small iron condor (2 NOV 160/165/190/195) at $1.07/$1.79/$1.79/$1.01 back on 10/27.

    I had watched it gradually gain some credit, as it was staying around the middle of the rather broad flat.

    Until today, when SHLD announced they would be announcing earnings on 11/16.

    I was totaly confused at first - the stock had stayed relatively flat, but all the profit was gone. I finally found the culprit was an increase in the IV - the prices of the options had increased by .37/.35/.52/.40.

    I've lost most of my accumalated time decay profits todate.

    First, this has been an interesting educational experience for me on IV; I certainly wasn't expecting this, and frankly hadn't clearly understood this risk element. So I got an education today, at a relativly small price :D

    SHLD is currently trading almost dead center in the flat. However, I don't expect it to stay there after the announcment on the 16th.

    The plan I had was to trade out if it broke out of the flat, or to leave it until the last week otherwise. However, now I don't have a plan at all - the stock is still in the middle, although it will probably bound out of it (although it's a rather broad flat...) - but I'm concerned the IV will now stay high through the 16th, severally limiting any profits. Am I interpretting this correctly?

    Do you have an opinion regarding expected IV over the time until the 16? Would it generally decrease, or increase between now and the 16th? It's already decreased from earlier today, but I wouldn't expect it to return to where it was prior to today.

    Per ivolatility.com, IV was around 33% prior to today; it appears to be around 47% today at close.

    DGTV for the position is 9.10,-2.56,18.80, -8.78.
  2. today's vols ramp already did the max damage to your position , I don't think you get hurt ( or help) from future vols action which probably will be offset by theta gains from this point. Price change is your main concern now , this stock can ( and did before) easily move 10% over report.
    Stay until exp : 160 profit vs 340 potential loss , OR close now for small profit and move on.
  3. You will keep the full $300 credit, if SHLD finishes between 165 and 190. IV does not matter when no time is remaining, IOW you let all the options expire.

    You will make money, not including commish, between about 163.5 and 191.5 (just quickly looking at a graph).

    Max loss is -$700, if I am interpreting your spread correctly: Long 160 P, Short 165 P, Short 190 C, Long 195 C
  4. JavaBen


    Thanks for the insight guys!

    Yes, you interpreted the values correctly.