Contributor S.E.
Inside the mind of Shaun (Trading Group Friend)
On September 19th we 10 contracts of the 480--490--500--510 call condor for October expiration. The price getting in was $1.85. The stock was trading in a range between 470 and 475 that day and this is about a week and a bit after gapping down from a level above $500 a share (buy the rumor, sell the news)
ENTRY
I'd like to discuss a couple of points here that helped lead to the success of the trade. While the structure is technically a condor, as mentioned, the way it was set up had a feel similar to that of a butterfly. Both a butterfly and a condor can be broken down into vertical spreads which is typically how I think of them. They both have a long vertical and short vertical portion to their respective structures with the difference being that condors have a gap in between the two spreads. What that typically does is make them a little more delta sensitive, for better or worse.
In this particular example the two vertical spreads are both $10 wide. On a $500 stock $10 only represents a 2% move. That's nothing for this stock. It can move that in a day easily. What this means is if you owned a $10 wide fly (for example the 480--490--500 call butterfly) it will hold it's value at a muted level until about expiration week where you would see things begin to open up -- meaning the difference between the value of the long spread and short spread is becoming more noticeable. This is what I was getting at when I say my condor had the feel of a butterfly. It's not going to be too delta sensitive and you will need to ride things closer to expiration. It's just the way options work when a stock can easily traverse the entire span of your condor, $480 to $510, in a couple of sessions.
The next point involves a bit of luck but it's luck that can be found every now and then. AAPL gapped down on September 11th, taking a tumble below $450 before Icahn et al. rescued things. From there, as a stock follower, I wanted to see things stabilize a bit. It was conditioned in for most of the previous year to not trust the stock to the upside anymore. As it was things looked good for about a week and I felt comfortable enough taking a stab at some upward action to "close the gap." What I felt I had working in my favor was some natural attraction yet resistance around $500. Some want to scratch a position if the stock makes it back up while others bought the dip and are looking forward to earnings.
So here we have a position that is strategically located, a delta that isn't too sensitive and a broad market that's anyone's guess.
After patiently sitting on things for three weeks, today I reached my target exit for half of the position. Paying $1.85 on the way in, a double would be $3.70. I like to cover things like commissions so I set my "sell 5" order at $4. That filled so the trade can't lose money on the position.
EXIT ONE
Usually that's enough to make me want to ride things closer to expiration but right now the market is starting to make bigger moves. What's here today may be a distant memory tomorrow. Also, it's wrong to think that "I can't lose" on this position so what the heck. I still have 5 contracts worth around $4. Sure they might go to $10, but realistically I'd look to exit around $6 to $8 unless I'm a total hog. If the broad market was more settled I think I would wait and try but the way things are I decided to just take it all off, selling the remaining 5 out at $4.20 a few hours later. I've done better than doubling my investment in three weeks so good enough.
EXIT TWO
