Friday, December 21, 2012

Sell to open SPX FEB Iron Condor and EEM Jan$44 Call

With about 2 month to Feb expiration, I sold an iron condor spread of SPX today as market tanked in monster volume (partly due to quadruple witching expiration of options and futures). My premium sell order for the SPX spread was 10 cents below the mid price as usual. It got filled immediately. The target exit time is 1 month later. The delta of the short strikes were around 23, presenting a high probability (66%) of ITM by Jan expiration time as shown in the graph below. I plan to add to my Feb option inventory every other day later until I complete all my positions of the Feb portfolio.

The volatility $VIX was very high in the last few days and it shot up more than 6% at this morning. Under normal cases, $VIX was supposed to be in the bottom level of its recent two month range, considering SPX was at the top level of its trading range. This type of divergence signaled there were heavy hedging going on against the fiscal cliff and there would be a big move in the market in either direction. So I sold Jan$44c of delta around 0.3 on EEM today to hedge the down side risk a little bit. I have June$40c opened a few weeks ago. So now I converted it into a diagonal spread.

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