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When Should You Re-Sell the Call Side of an Iron Condor in SPX?

09/09/2010 12:01 am EST


Mark Sebastian

Founder, Option Pit LLC

Option traders, as an option mentor, one of my goals is to be as modest in victory as I am in defeat. However, I have to admit that even I couldn't have predicted this right this quickly. The SPX has rallied from just below 1050 back to 1100 again.

At this point, I think the run has to be coming to an end. As I have stated over at TheStreet, I think we are in “trader's misery” with declining volatility and declining price. I think we end up having a lower low in the VIX and VXX (which we are at), and at the same time, a lower high in the SPX. On the next oscillation down, I think we could hit below 1040—maybe 1030—before heading back toward the 1090-1100 range. I think the SPX is about done and so is volume.

The VXX is at its 52 week low:

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The VIX is at its low since the flash crash:

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The SPX can’t seem to break through 1100:

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This leads me to a topic. Many traders smartly took off the call side of their iron condors already. Hopefully, most traders out there trade like we teach our option mentoring students. We at do not immediately roll down the calls just because the puts might be threatened and we can get the call side off. Our approach is that there is nothing worse than selling the low. No, we prefer our traders to wait, manage the threatened side as its own trade, then possibly sell the closed side the right time. Personally, I am almost never in love with the idea.

Right now, volume is near a low, and if a trader can, he or she should consider closing out the puts at this point. However, if the puts are not performing up to snuff, I would actually consider adding the calls back.  

I think we may have another 10-15 handles in the SPX, but that is about it. Not something I would always do, but if the circumstances fit, I might consider it now. Right now, in October, a trader can sell the 15-delta call and buy the strike ten points apart. If the trader can collect over 1.00, I would consider the trade.

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I would then look at several other things that would in the end help me determine if rolling down is the right move.  However, I would strongly warn the trader that if the credit isn't there and they are that worried about things turning around, they can buy the puts back! Don't force a trade…ever!

By Mark Sebastian of

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