Update...nothing major.

It's been over a week since my last post but it is not because I haven't been trading. I have been very busy at work and just finished a large proposal today only to have to book flights for next week as I head to Missouri for a training week.

On the trading front I had a couple of close trades that I closed partially to avoid large losses and I have adjusted them by opening matching lower strike put spreads to recoup some of the loss. I am also looking at increasing the call sides of some of the best iron condor trades to boost the returns by a couple of percent. I have not taken the time to do the math on my current progress...I'll do that after expiry next week and again at EOM expiry.

Actually, that is worth looking closer at. I can run some call spreads without eating up my working capital as the broker/accountants do not consider call spreads, as far away as I set them, a risk. In theory I could run only call spreads and have a very safe account and probably increase my "working capital allowance" by 30% or so.

Math time.

The last trade that I placed had the call spread worth 0.75 points and the put spread worth 1.05 points. That is (net commissions) $148.50 and $223.50 respectively or 1.8 points for the entire trade...$372.

Two things can be taken into account here. Assuming that the trade risk is the typical $5000 (less profits...but let's keep the math simple) for each iron condor. The call side is $5000 and the put side is also $5000 but the put side is the only real risky part, which only stands to reason that it is also the more profitable part. Even though there is $10,000 of risk on the table they only count the put $5000.

I can place a call spread and risk $5000 with out always having to foot the $5000, in fact I have two such trades right now where the call "risk" is over my allowable spare cash balance...but with a call at 1205 there is VERY little chance of it getting nailed. I may have a margin call if the market took off all of a sudden though...either I would have to close the trade, close another trade or send more cash to cover the potential loss.

Back to my math for a moment.

For a full iron condor with $148.50 in call premium credit and $223.50 in put premium credit if I doubled the call side I would have $297 in call only credit PLUS the put side for a total of $520.50 while only putting up $5000 of capital. This makes the return on "assumed risk" 10.4%.

That beats my 6% target hands down, or $300 per trade per month.

Assume that I can run 9 trades (simpler math here, 6% is $2700 in profits), the calls are worth 1/3 of the total trade and I can either double the calls on 3 of them or trade only calls I could see two outcomes.

1) bump the calls on two returns (9 trades x $300 + 3 calls at $100 = $3000) that's $300 a month or the equivalent of one full trade.

2) trade only call spreads and use an additional 30% capital ...ooops I hadn't thought that one through. I would have to be able to make 3 times the number of trades to only hit the same profit level...that is a 300% margin allowance... that is more than pushing it.

So, while my "all in " approach has me not able to cherry pick the trades I certainly can cherry pick the trades that have better call premiums to increase.

Having said that, I should be able to add to an existing iron condor while it is in process. Place a trade, fill and a week later if the S&P500 levels go up and the call premiums rise with the level I can "top off" the trade with an extra, shorter term call spread.

Nice.

Jeff.