Dan Sheridan Adjust Condors in Volatile Market

Dan Sheridan’s
Adjusting Condors
in a Volatile Market
5 Different Adjustment Ideas!
May 14, 2009

Sheridan Options Mentoring, Inc.
www.SheridanMentoring.com
Dan Sheridan’s
Adjusting Condors
in a Volatile Market
5 Different Adjustment Ideas!
May 14, 2009

Disclaimer
The views of third party speakers and their materials are their own and do not necessarily represent the
views of Chicago Board Options Exchange, Incorporated (CBOE). Third party speakers are not affiliated
with CBOE. This presentation should not be construed as an endorsement or an indication by CBOE of the
value of any non-CBOE product or service described in this presentation.
Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must
receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are
available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One
North Wacker Drive, Suite 500, Chicago, Illinois 60606. The information in this presentation is provided
solely for general education and information purposes. Any strategies discussed, including examples using
actual securities and price data, are strictly for illustrative and educational purposes. In order to simplify the
computations, commissions and other transaction costs have not been included in the examples used in
this presentation. Such costs will impact the outcome of the stock and options transactions and should be
considered. Investors should consult their tax advisor about any potential tax consequences. No
statement within the presentation should be construed as a recommendation to buy or sell a security or to
provide investment advice.
Multiple leg strategies involve multiple commissions charges. Brokerage firms may require customers to
post higher margins than the minimum margins specified in this presentation.
Acknowledgement
Screen shots of OptionVue 5 Software courtesy of OptionVue Systems International. www.optionvue.com
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@ Copyright 2009. All rights reserved. Page 5

RUT May Condor
Date: 4/15/2009 Price: $460.94

Adjustment #1 Rolling
adjustment in a Trending Market
Date: 4/15/2009 RUT Price: $460.94
MAY(30)
Options Price IV Trade
520 Calls $5.00 42.5% +10
510 Calls $6.80 42.9% ‐10
400 Puts $5.90 52.0% ‐10
390 Puts $4.50 53.1% +10
Delta -5.5 Credit $ 3,170

Gamma -1.3
Theta 76.0
Vega -96.9

What is the margin?
Date: 4/15/2009 RUT Price: $460.94

Why is this an adjustment point?
Date: 4/29/2009 RUT Price: $491.06
MAY(16)
Options Price Delta IV Trade
520 Calls $6.10 22.20 39.7% +10
510 Calls $9.00 30.70 40.4% ‐10
400 Puts $1.30 -4.50 61.2% ‐10
390 Puts $0.95 -3.37 63.1% +10

Gamma -2.6 Loss $ (80)
Theta 107.5
Vega -65.9

Bad Neighborhood?
Date: 4/29/2008 RUT Price: $491.06

Why roll up 12 call spreads?
Why roll up only 5 put spreads?
Date: 4/29/2009 RUT Price: $491.06
MAY(16)
Options Price Delta IV Trade New
540 Calls $2.35 10.4 38.2% +12
530 Calls $3.90 15.6 38.8% ‐12
520 Calls $6.10 22.2 39.7% +10 ‐10
510 Calls $9.00 30.7 40.4% ‐10 +10
440 Puts $4.00 -13.9 51.1% ‐5
430 Puts $2.95 -10.6 53.2% +5
400 Puts $1.30 -4.5 61.2% ‐10 +10
390 Puts $0.95 -3.4 63.1% +10 ‐10
After Adjusting New Credit $ 2,250
Delta -45.2 Loss $ (80)
Gamma -2.1
Theta 125.6
Vega -92.5
How did adjustments affect our deltas?
Date: 4/29/2009 RUT Price: $491.06
MAY(16)
540 Calls $2.35 10.4 38.2% +12
530 Calls $3.90 15.6 38.8% ‐12
520 Calls $6.10 22.2 39.7%
510 Calls $9.00 30.7 40.4%
440 Puts $4.00 -13.9 51.1% ‐5
430 Puts $2.95 -10.6 53.2% +5
400 Puts $1.30 -4.5 61.2%
390 Puts $0.95 -3.4 63.1%
Before Adjusting After Adjusting New Credit $ 2,250
Delta -73.6 Delta -45.2 Loss $ (80)
Gamma -2.6 Gamma -2.1
Theta 107.5 Theta 125.6
Vega -65.9 Vega -92.5
Philosophy of adjustments?

How did we get our dough?
Did price or time help us?
Date: 5/7/2009 RUT Price: $492.95
MAY(8)
540 Calls $0.75 5.30 39.6% +12
530 Calls $1.55 9.89 39.4% ‐12
440 Puts $1.25 -6.90 53.7% ‐5
430 Puts $0.80 -4.56 56.2% +5

Gamma -3.0 Profit $ 1,054
Theta 191.0
Vega -75.6

Should we have stayed in?
Date: 5/7/2009 RUT Price: $492.95

Always a consequence to our Greed!
Date: 5/8/2009 RUT Price: $511.41
MAY(7)
540 Calls $1.70 14.1 35.2% +12
530 Calls $3.60 23.6 36.0% ‐12
440 Puts $0.40 -2.6 56.2% ‐5
430 Puts $0.30 -1.7 61.3% +5

Theta 245.4
Vega -76.9

Adjustment #2 Buy calls next month out-
best in volatile 2 way market
Date: 4/15/2009 RUT Price: $460.94
MAY(30)
520 Calls $5.00 42.5% +10
510 Calls $6.80 42.9% ‐10
400 Puts $5.90 52.0% ‐10
390 Puts $4.50 53.1% +10

Gamma -1.3
Theta 76.0
Vega -96.9

RUT Iron Condor
Date: 4/15/2009 RUT Price: $460.94

Adjustment time, why?
Date: 4/29/2009 RUT Price: $491.06
MAY(16)
520 Calls $6.10 39.7% +10
510 Calls $9.10 40.6% ‐10
400 Puts $1.35 61.3% ‐10
390 Puts $1.05 64.6% +10

Gamma -2.2 Loss $ (130)
Theta 96.3
Vega -64.0

Welcome to the Bad neighborhood!

Which call to buy?
Date: 4/29/2009 RUT Price: $491.06
MAY(16) JUN(51)
Options Price Delta Trade Price Delta Trade
540 Calls $2.35 11.5 $11.80 26.6
530 Calls $3.90 16.9 $14.80 31.2
520 Calls $6.10 23.6 +10 $18.40 36.1 +1
510 Calls $9.10 31.8 ‐10 $22.30 41.1
400 Puts $1.35 -5.1 ‐10 $6.70 -14.2
390 Puts $1.05 -3.8 +10 $6.00 -12.0
Before Adjusting After Adjusting Credit $ 1,329

Delta -70.3 Delta -34.2 Loss $ (130)
Vega -64.0 Vega 6.2

There is a consequence, but we
are trying to stay in the trade!
Date: 4/29/2009 RUT Price: $491.06

Why at 2nd adjustment point?
Date: 5/4/2009 RUT Price: $498.12
MAY(11) JUN(46)
530 Calls $3.40 17.5 $15.20 33.6
520 Calls $5.70 25.8 +10 $18.90 38.8 +1
510 Calls $9.10 36.7 ‐10 $23.30 44.3
400 Puts $0.60 -2.4 ‐10 $5.00 -11.6
390 Puts $0.45 -1.8 +10 $4.50 -9.7
Before Adjusting Credit $ 1,329

Delta -62.9 Loss $ (331)
Gamma -1.7
Theta 95.2
Vega 19.0

Why buy the 530 call?
Date: 5/4/2009 RUT Price: $498.12
MAY(11) JUN(46)
Options Price Delta Trade Price Delta Trade New
530 Calls $3.40 17.5 $15.20 33.6 +1
520 Calls $5.70 25.8 +10 $18.90 38.8 +1
510 Calls $9.10 36.7 ‐10 $23.30 44.3
400 Puts $0.60 -2.4 ‐10 $5.00 -11.6
390 Puts $0.45 -1.8 +10 $4.50 -9.7
Before Adjusting After Adjusting Debit $ (192)

Delta -62.9 Delta -29.3 Loss $ (331)
Vega 19.0 Vega 85.2

Trying to smooth out the curve
Date: 5/4/2009 RUT Price: $498.12

Are we in trouble again?
Date: 5/8/2009 RUT Price: $509.51
MAY(11) JUN(46)
540 Calls $1.50 12.8 $13.10 32.4
530 Calls $3.20 21.9 $16.90 38.1 +1
520 Calls $6.20 34.8 +10 $21.10 43.9 +1
510 Calls $10.70 50.0 ‐10 $26.00 49.8
400 Puts $0.10 -0.5 ‐10 $2.45 -7.6
390 Puts $0.10 -0.3 +10 $1.90 -6.1
Before Adjusting Debit $ (192)

Delta -67.7 Loss $ (892)
Gamma 0.2
Theta 36.5
Vega 116.0

Why the 540 call?
Date: 5/8/2009 RUT Price: $509.51
MAY(11) JUN(46)
540 Calls $1.50 12.8 $13.10 32.4 +1
530 Calls $3.20 21.9 $16.90 38.1 +1
520 Calls $6.20 34.8 +10 $21.10 43.9 +1
510 Calls $10.70 50.0 ‐10 $26.00 49.8
400 Puts $0.10 -0.5 ‐10 $2.45 -7.6
390 Puts $0.10 -0.3 +10 $1.90 -6.1
Before Adjusting After Adjusting Debit $ (1,502)

Delta -67.7 Delta -35.3 Loss $ (892)
Gamma 0.2 Gamma 0.7
Vega 116.0 Vega 179.9

Sea of Death?
Date: 5/8/2009 RUT Price: $509.51

Adjustment #3- No adjustment
get out when down around 12%
Date: 4/15/2009 RUT Price: $460.94
MAY(30)
520 Calls $5.00 42.5% +10
510 Calls $6.80 42.9% ‐10
400 Puts $5.90 52.0% ‐10
390 Puts $4.50 53.1% +10

Gamma -1.3
Theta 76.0
Vega -96.9

RUT Iron Condor
Date: 4/15/2009 RUT Price: $460.94

Should we leave early Honey?
Date: 4/27/2009 RUT Price: $469.68
MAY(18)
520 Calls $3.30 42.4% +10
510 Calls $5.00 43.0% ‐10
400 Puts $3.10 59.2% ‐10
390 Puts $2.20 60.7% +10

Gamma -1.8 Profit $ 570
Theta 125.6
Vega -89.0

Upside will take our dough!
Date: 4/27/2009 RUT Price: $469.60

I am hurting psychologically now!
Date: 4/29/2009 RUT Price: $491.06
MAY(16)
Options Price IV Delta Trade
520 Calls $6.10 39.8% 23.8 +10
510 Calls $9.10 40.6% 31.9 ‐10
400 Puts $1.35 61.3% -5.3 ‐10
390 Puts $1.10 65.0% -4.0 +10

Theta 90.6
Vega -62.1

Hello Bad Neighborhood!
Date: 4/29/2009 RUT Price: $491.06

Have to get out! Why?
Date: 5/4/2009 RUT Price: $501.23
MAY(11)
Options Price IV Delta Trade
520 Calls $6.50 39.5% 28.3 +10
510 Calls $10.20 40.6% 39.7 ‐10
400 Puts $0.55 68.1% -1.9 ‐10
390 Puts $0.35 68.8% -1.4 +10

Gamma -1.8 Margin $10,000
Theta 130.0 Required $ 6,830
Vega -42.7 Loss $ (730)
Down almost 11%

We want to trade next month!
Date: 5/4/2009 RUT Price: $501.23

Adjustment #4 Roll plus adding long call
in the next month
Date: 4/15/2009 RUT Price: $460.94
MAY(30)
520 Calls $5.00 42.5% +10
510 Calls $6.80 42.9% ‐10
400 Puts $5.90 52.0% ‐10
390 Puts $4.50 53.1% +10

Gamma -1.3
Theta 76.0
Vega -96.9

Why the June 550 call?
Date: 4/29/2009 RUT Price: $491.06
MAY(16) JUN(51)
Options Price Delta Trade New Price Delta Trade New
550 Calls $1.35 6.6 $9.30 21.7 +1
540 Calls $2.35 10.5 +12 $11.80 26.1
530 Calls $3.90 15.6 ‐12 $14.80 30.8
520 Calls $6.10 22.2 +10 ‐10 $18.30 35.8
510 Calls $9.00 30.6 ‐10 +10 $22.30 41.0
400 Puts $1.30 -4.5 ‐10 $6.70 -13.5
390 Puts $0.95 -3.4 +10 $5.50 -11.3

Gamma -1.6 Loss $ 80
Theta 117.5
Vega -36.4

Remember, Philosophy of adjustments?
Date: 4/29/2009 RUT Price: $491.06

How did we make money?
Date: 5/7/2009 RUT Price: $492.95
MAY(8) JUN(43)
550 Calls $0.40 2.2 $7.20 18.9 +1
540 Calls $0.75 4.8 +12 $9.50 23.5
530 Calls $1.55 9.2 ‐12 $12.30 28.6
400 Puts $0.20 -1.2 ‐10 $4.30 -10.5
390 Puts $0.15 -0.8 ‐10 $3.40 -8.5

Gamma -2.4 Profit $ 976
Theta 119.2
Vega -20.9

Peril is on the upside!
Date: 5/7/2009 RUT Price: $492.95

Adjustment #5- scale out
Date: 4/15/2009 RUT Price: $460.94
MAY(30)
520 Calls $5.00 42.5% +10
510 Calls $6.80 42.9% ‐10
400 Puts $5.90 52.0% ‐10
390 Puts $4.50 53.1% +10

Gamma -1.3
Theta 76.0
Vega -96.9

RUT Iron Condor
Date: 4/15/2009 RUT Price: $460.94

Down 10% take off 1/3 of bad side
Date: 4/15/2009 RUT Price: $460.94

Down 15% take off another 1/3
Date: 4/15/2009 RUT Price: $460.94

At short strike take off remaining spreads
Date: 4/15/2009 RUT Price: $460.94

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Dan Sheridan Adjust Condors in Volatile Market

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Delta -5.5 Credit $ 3,170

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Delta -73.6 Credit $ 3,170

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Delta -43.2 Credit $ 2,240

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Delta -109.7 Credit $ 2,240

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Delta -5.5 Credit $ 3,170

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Delta -70.3 Credit $ 3,170

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Before Adjusting After Adjusting Credit $ 1,329

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Before Adjusting Credit $ 1,329

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Before Adjusting After Adjusting Debit $ (192)

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Before Adjusting Debit $ (192)

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Before Adjusting After Adjusting Debit $ (1,502)

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Delta -5.5 Credit $ 3,170

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Delta -27.0 Credit $ 3,170

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Delta -67.8 Credit $ 3,170

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Delta -108.5 Credit $ 3,170

Down almost 11%

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Delta -5.5 Credit $ 3,170

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Delta -28.7 Credit $ 1,166

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Delta -30.5 Credit $ 2,296

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Delta -5.5 Credit $ 3,170

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