A Bunch of Trades

This morning, the SPY opened below its 200-day moving average after flirting with it on an intraday basis for the past three sessions.  This signalled "Exit" in the MACO component of CS|MACO, and so I closed the long SPY position at the open for a price of 127.80.  I changed the entry criteria a few months ago after doing some backtesting, and under the updated rules, CS|MACO would have bought SPY back in September 2010 for around 112.  Unfortunately, in real life I can't go back in time, so the SPY position only yielded about $1/share due to its much more recent entry.

The CiG trade has seen me in and out of S&P Futures several times this last month as the stock market went through its daily gyrations.  The trades have mostly been profitable, but it has been a challenge to risk-manage the positions when the stock market has opened up and closed lower, or vice-versa.  This debt deal nonsense going on, coupled with the worrisome economic numbers coming out lately, has the market on edge.  CiG is long S&P and underwater right now, and not far from its stop-loss on the current position.  As a counter-trend-fade trade, CiG is always destined to get hurt when the long term trend reverses instead of simply correcting.  Times like this one are built into the profit expectation, which makes them easier to take.  I am actually using a small number of SPY calls as a proxy for S&P Futures this time around, because CiG called for a long position on Friday amidst swirling rumors about debt ceiling activities over the weekend.  Since stop-loss orders don't work on Saturday, I felt something with a defined maximum loss was a good idea.  I spent the same in premium as I would have lost with a stopped-out position, which lets me keep the trade on no matter what the market action... in exchange for lower profits, if I ever see any.

Speaking of on-edge markets, I bought some deep out-of-the-money calls on GLD during the height (so far) of the debt ceiling circus.  My reasoning was that if the talks really broke down and no deal was formed, then the country's debt rating would be immediately downgraded, the stock market would crash, the economy would head straight into recession again, and the Fed would pledge QE3 to try to policy our way out of this gigantic mess we created for ourselves.  Panic + money printing = inflation expectations + falling dollar, and Gold would climb a wall of worry.  Having some leverage on the only thing likely to rally in that environment would help control the bleeding in my portfolio.  This was (almost) a Black Swan trade, and now that the clowns in Washington are getting back into their tiny car, I'm working to exit the position, starting with getting out of about 25% of the contracts at a 20% profit today. Considering what else would have happened if this position made a lot of money, I'm pretty glad it didn't come to pass.  But with lowered profit expectations, I still should be able to deleverage for a nice profit on the trade.

Despite my taking my finger off the big red button, I still don't have high hopes for the economy. I think the stock market is terribly overvalued (when don't I?), and we are so close to slipping into another deep and painful recession right now that I feel like I need to protect myself against a big market sell-off.  Back in May I bought some puts on SPY, and then took a lot of heat on them.  I was OK with this, as I was more interested in catching a big long-term sell-off throughout the summer than in a small short-term correction in the late spring.  We have now closed below the 2011 lows (125.28 on March 16), so the puts are starting to fulfill their roles as portfolio hedges.

In the midst of all the other excitement going on the last month or two, I sort of forgot about the Iron Condor.  Luckily for me, I placed some target-profit exiting orders before I forgot about the position.  While I ignored the trade the Russell oscillated up and down, taking out my exit orders and then returning to nearly unchanged before I went and looked at it today.  So I discovered a half-sized, well-centered, and very profitable Iron Condor position when I finally bothered to look at it.  Since it had already depreciated past my target for the trade and most of the way toward maximum return, I went ahead and closed it out the rest of the way, opening an Oct 860/870/690/680 IC while I was at it.  This "forget it and get lucky" approach is not a good one, but it happened to work this time.

One trade that didn't work out as I'd hoped was Office Max (OMX), which reported earnings this morning before the stock market open.  Historically, the stock has done very poorly on earnings announcements, and they were only expected to break even in the latest quarter.  Between that and the general skittishness in the market, I felt puts on Office Max were a low-risk play with a high probability of an overnight profit.  This is similar to how I like to play Research in Motion (RIMM) around earnings.  Office Max beat expectations with a 7c/share profit, however, and OMX quickly rallied 18% on the open.  I took the loss on the puts and moved on.

Quick Position Run-Down

• I have a Wal-Mart bond as well as a couple of Illinois muni bonds to control my portfolio volatility.
• I have a long position in a commodity ETF (DJP), which is primarily energy, metals, and agriculture - this is a "China needs stuff" long-term investment.
• I still have a sizable position in GLD call options, as well as long-term holdings of GLD and GDX - to take advantage of this record-setting gold bull market and to partially protect against a market apocalypse.
• I have an investment-grade corporate bond ETF (LQD), which is designed to capture the strength of companies relative to people, without being directly correlated to the stock market.
• I have puts on SPY at both the 129 and 126 strike level; not a huge number, but enough to turn my trading screen green on ugly days like today.
• I have recently started accumulating exposure to oil via USO.  I've been watching crude-oil futures every day at work for months, and I feel like buying USO on big crude dips is a good idea.  I bought my first batch when oil dropped below $95/barrel, and I'll buy some more during the next recession.  Maybe a lot more, since this is also a long-term "China needs stuff" investment.
• I have puts on Xilinx (XLNX), and I'm working an order to close the position for a 125% profit.  This position has hung around longer than I would have liked, but it is finally starting to work itself out.  It started out as an earnings season pessimism trade and turned into a general bearish trending position.
• I am long the Canadian Dollar ETF (FXC), which I bought at par.  This is another US Dollar hedge, and I don't have a specific plan for when to close this position.
• I'm still long Microsoft (MSFT) from a long time ago.  I keep looking for opportunities to write covered calls or something against this position, but the collectable premium is so bad that I can't justify the risk of losing the stock at ex-div, even though the yield is only 2%.  I really need to unload the stock soon, though, as its membership in the DJIA guarantees a rough couple of years when the recession hits.  Mental note: get on this one.
• I have a small position in inflation-protected treasury bonds (TIP), as another hedge against inflation getting away from Uncle Ben.
• I also have a small position in Verizon (VZ).  I took half of it off a few months ago, and have been working a target exit ever since.  Meanwhile, the dividend yield on the stock is 5.5%, which is easy to procrastinate getting rid of.

A Little Success

I had some tough trading days this month, so it's nice to have the kind of success that makes it all feel easy.

In Motion, but In Which Direction?

Research in Motion (RIMM), maker of fine Blackberry-branded devices, is a company built on a fad.  Corporate users relied on their "crackberries" for years, especially when travelling or otherwise out of the office.  But Apple's iPhone was Blackberry's first serious competitive threat, and the flood of Android devices were the second half of the one-two punch.  The fad is over, and RIMM is shrinking. 

For some reason, the investment community doesn't seem to have accepted this obvious fact.  Analysts still talk in breathless whispers about RIMM's upcoming tablet devices (I'm betting it'll suck), and the amazing experience provided by its latest phone operating system refreshes (evolutionary, blah).  Many otherwise intelligent hedge fund managers still treat RIMM like a tech sector bellweather, buying it up on every positive rumor, selling it off again on every fundamental stumble.  As far as I'm concerned, RIMM is as relevant today as Digital Equipment Corp was in 1997.  Unfamiliar with DEC?  I rest my case.

Just like an eccentric hermit who occasionally ventures into the big city for a group therapy session, RIMM lovers are periodically snapped back to reality.  This check happens quarterly, when RIMM reports earnings.  This is my opportunity for one of my very most favorite short-term trades: buying puts on RIMM just before earnings come out.  I have had varying success lately, as bubbly investors drunk on excess Fed liquidity shrugged off what could only be described as luke-warm results.  But overall I believe the trade is a good one, and I had another opportunity for it this week: RIMM reported its latest earnings on Thursday after the market closed.

I bought puts on Tuesday, and when the market rallied, taking RIMM along with it (thus reducing the price of my puts as well as the delta), I bought more on Thursday.  RIMM closed at 64.09 on Thursday, just before its conference call.

Don't ask me how RIMM did last quarter: I don't know and I don't really care.  But I know they disappointed both in their top-line revenue numbers ("oh but look at the continued cost-cutting!" the analysts said) as well as their outlook for the next quarter and rest of the year ("they're in a retooling phase, just like the late 90s!" the analysts screeched)*.  Ms. Market would have none of this posturing and spin management, and she sold that sucker off by 11-12% in after hours trading.  The next morning, RIMM opened at 57.17 (-10.7%), and my puts were up about 80-90%.  Hapless investors who haven't yet learned not to listen to analysts started buying the stock up, topping it out at 58.40 (-8.9%) about an hour after the market opened. 

2-day, 5-minute chart of RIMM showing the 11% drop after earnings

By the way, the first hour of trading is known in the professional trading community as "amateur hour."

I exited some of my puts pretty early, in case the rally had legs, and in doing so I took all of my investment out of the trade - the remainder of my puts were pure profit.  Later in the day, as the dead-cat bounce pattern continued to take shape, I exited the rest at a slightly higher price.  Total return: 90% in 3 days.

* I distinctly remember reading that exact comment ("retooling phase... just like the late 90s") on Thursday night after the release, on a news item linked from Yahoo Finance.  I remember noticing that the related links section at the end of the post included Jim Cramer and other well-known "pundits".  I also remember the analyst giving an unequivocal Buy! recommendation based on how he saw the market reacting the next day (he expected a lot of buyers to step in, for some reason).  Now that the market has spoken, essentially confirming what the overnight traders knew already, somehow I can't find that article anywhere.  Too bad, I would have included a link to it.

CS|MACO: Unnaturally Quiet

First the good news: the AAII sentiment survey for March 23 did indeed reflect a more bullish flock, but insufficiently bullish to make the CS|MACO trade exit the next morning.  Meanwhile, SPY rallied above its 25-day moving average, so I now have a Hold signal from CS and a Long signal from MACO.  Unless CS goes all the way to Short, or SPY sells enough to get a Flat signal from MACO, I can stay in the trade.  SPY is already up nearly 3% from where I bought it on Thursday morning.  One of these days I'll do some more formal backtesting and maximum-drawdown analysis so I can leverage this trade up, but for now I'm content to let it just time an unleveraged entry and exit.

The bad news (and here, my poker friend Missy will start snickering if she's still reading) is that I discovered on Thursday that my spreadsheet that does all the calculations and boils the numbers down to Long/Hold/Exit/Short had some serious flaws that caused CS|MACO to miss two entry signals for smallish winning trades this fall.  Oops.  A craftsman is only as good as his tools, I guess.

The Condor Has Landed

My April Iron Condor managed to finish legging out of its bullish wing at a reasonably good price on Friday, completing the exit of the trade and profiting a nice solid $1.10/contract.  I never had to take any risk-management positions - just reduce quantity on the initial position as I worked my way out.  I'm looking for a good entry point for the May IC, but volatility is back down in the doldrums again.  I'll have to wait until the market gets skittery about something again - if that means skipping until June, so be it.

CS|MACO... Finally!

Mea Culpa

First, I need to relate a painful but valuable lesson I learned last week.  In my previous post, I said that the CiG trade had fired a Buy signal on S&P Futures.  As a fade strategy, the CiG trade frequently signals trades that I view as bat-shit crazy.  It takes some teeth-gritting and reminding myself that this is fake money in order for me to be able to enter the trade sometimes.  Last Wednesday was one of those times.

I dutifully entered the trade, but I put a $500/contract stop-loss order in, instead of the $1000 that the script calls for.  I congratulated myself a couple of hours later when my stop-loss was hit, closing me out for a $500 loss, on saving the other $500 dollars.  Well... go look at a chart for S&P Futures.  My max unrealized loss that evening would have been about $700, and over the next two days we had a sizable rally.  By the time the exit signal arrived, the trade as designed would have been up over $2000/contract, a big return.  Instead, I was sitting on the sidelines with a $500 loss.  My "judgement", in this case, cost me a total of $2500/contract.  Ouch.

So why did I go against the trade as back-tested by NeighborTrader?  My rationale at the time was that this was a fundamental market move, and we were in uncharted territory that couldn't possibly be handled by back-testing.  OK, fair enough, and that's what judgement is for.  But I took the wrong action based on that judgement: instead of tightening my stop, which cut my max loss by 50% but increased my probability of experiencing that loss by far more than 100%, I should have opted not to place the trade at all.  If my comfort level with the risk is insufficient to execute the trade as designed, I should avoid the trade entirely - not cripple it and damn it to fail.

My conclusion was invalid, even if my assertion (these unprecedented times are likely to cause the trade not to work) was valid.  But what about my assertion?  If we want to look at unprecedented times, let's look at May 7, 2010, the day after the "Flash Crash" (I hate this term, by the way).  CiG would have similarly fired a Buy signal at the end of the day that day, and the exit signal would have come two trading days later, for a profit of over $2200/contract.  And here's the thing: NT back-tested this trade before May 7, 2010.  That's out-of-sample data, and thus can't be discarded as sample bias in his back-testing.

So my assertion -- unprecedented times invalidates the trade signal -- was invalid, and my conclusion on how to act on it -- tighten the stop -- was invalid as well.  Look, I'm not perfect, but if I had gotten either thing right, I'd feel a lot better about it.  Anyway, $2500 lesson learned: either follow the trade, or don't do the trade - don't adjust the trade on the fly based on my gut.

Oh, and you may recall me mentioning that "by rights, I should be short Ten Year Futures, too". That trade, if entered, would have made another $1250/contract over the course of three trading days.  Sigh.

CS|MACO

Last Wednesday night, not long after my stop-out, AAII's sentiment survey for March 17 was posted, and those inversely prophetic investors had some pretty negative things to say about the market.  Bullishness dropped all the way to 28.5%, just below the CS Buy signal level of 31.5.  With SPY trading between its 25SMA and its 200SMA, the MACO component was giving a hearty "meh" signal.  Buy + don't-care = Buy.  So I bought a unit of SPY the next morning... at 128.  SPY is still in MACO's "meh" territory, but up 1.66/share from my buy price; AAII publishes another weekly survey overnight tonight.  If my individual investor peers recognize the cessation of the downtrend last week and get more bullish ("bullisher"?), I might find myself selling SPY on the open tomorrow morning.  But they'll have to get a lot "bullisher" - 41.5% or more - for me to take my profits and go home.  We'll see.

General Thoughts

As regular readers of this blog know, I run multiple trades in my paperMoney account at ThinkOrSwim.  Besides the ones mentioned above, I also have a bullish NDX option vertical spread on to simulate a collar, a bearish SPX option vertical spread, an Iron Condor in RUT (Russell 2000) and naked-long SPY puts.  I'm also looking for a dip in gold to buy back some GLD calls, after having exited my March calls before expiration.  The problem that I am starting to run into is that I have too many trades on the stock market - and many of them are nearly perfectly inversely correlated.  The worst offenders are the bearish SPX and bullish NDX spreads.  CiG and CS|MACO only hold positions once in a while - but the option spreads are there all month long, every month.

This false diversification doesn't benefit me at all - if they were real trades I would be spinning my wheels spending commission on an expectation of about 0 profit.  In a paperMoney account, this isn't so bad, because I can use the excuse that I am looking for profitable trades: the unprofitable ones will never "go pro" into a real money account.  But this is kind of a hollow argument, because any of these trades can be profitable or unprofitable, depending on the market conditions.

This issue bears more consideration.

And a Micro Rant

"They", whoever they are, changed the Nasdaq-100 ETF's symbol from QQQQ to QQQ last night.  WTF???  Didn't they just change it from QQQ to QQQQ a few years ago?  Make up your minds!

Some Trades Are More Frightening Than Others

Not Frightening
Over the weekend, the Collar trade was assigned on its QQQQ calls, meaning that my QQQQ position was closed out at 58.  After the events over the weekend, and the markets today, that ended up being a great trade all by itself (QQQQ closed today at 57.03, down 1.70 on the day).

The QQQQ Collar trade has been one of the few that I have been running with real money, and it has been going for about 18 months now.  Over the last 18 months we have had, overall, a pretty significant up-trend to the market; and a limited-profit trade like a collar is going to underperform during strong up-trend periods.  Sure enough, I've made some pretty good money in the collar trade: just under 16% in 18 months.  But if I had just bought QQQQ and held it, I would have had a much better return: close to 39% over the same period.  Despite this drastic underperformance, the trade is a success - it is a super-long-term trade, and in losing years, its losses are much more limited than a simple buy-and-hold.  If it had not underperformed, that would be a signal that something wasn't being hedged correctly.

This trade is not without its problems, however.  First, there is a great deal of subjectivity about what strikes to use for the covered calls and the protective put - I tried to solve this problem by setting some range parameters.  Next, I have been running this trade in an online broker that is geared more toward stock traders than option traders.  As a result, its commissions for options are terrible: $10.75 for a one-way one-lot option trade, vs the $1.50 I negotiated with thinkorswim.  When I'm doing 14 option trades a year, plus the fairly frequent assignment fee of $25 followed immediately by the need to repurchase the QQQQ outright for $7 flat, it gets expensive fast.  Finally, I have noticed that the time value on the about-to-be-front-month options drains significantly over expiry weekend.  But since my online broker is very touchy about naked short options, I have to choose between an expensive fee-to-price ratio rolling trade, or letting the premium disappear over the weekend.

Since the collar essentially closed itself out over the weekend, I decided now would be a good time to transfer its required capital to thinkorswim and run it there.  I may retain the stock/call/put configuration, or I may run an equivalent position of a simple bullish vertical option spread.  If I do that, I lose the calendar component of the 6-month put vs the 6 1-month calls, but I'm not convinced that component is valuable anyway.  In any case, I have some research to do before the money transfer settles.

Frightening
Back to fake money, the CiG trade lit up like a Christmas tree today, thanks to those crazy Libyans.  S&P futures sold off 28 points or about 2%, which signalled a Buy at the close.  I have been bearish S&P for about 6 months (it has gained 300 points during that time) but this is a mechanical trade -- my viewpoint doesn't figure into it.  Have you ever tried to make yourself buy something when you don't believe in it and it has just sold off by 2%? It isn't easy.

The gold futures trade last month wasn't easy, either, but it turned out fine; by the law of single-datapoint-patterns, that means this one should be just fine too.  Nevertheless, NeighborTrader and I did have some vertiginous fun imagining that we were each managing million-dollar accounts and thus had to buy 100 futures knowing that each point would make or lose $5000.  That would make today a $140,000 losing day for that account, had it been long that amount.  I think I'm happier in fake money for now.

I also had a preliminary Sell signal setting up in Ten Year Note futures... we'll see what tomorrow brings on that one.

Somewhere in Between
Rounding out the flurry of activity today, the sudden market downturn made the volatility indexes pop about 4 points.  Everyone has heard of the VIX, which measures implied volatility in options on the S&P 500.  Since my iron condor trade is on Russell (RUT), I use the VIX's cousin: RVX.  Anyway, the 4 point pop in the RVX was just what I needed to get a better price on opening an iron condor position, since it is a negative-vega trade.  I put on the 760/770/900/910 April Iron Condor, for a credit of $3.25/share.  Pretty respectable, considering the low-IV environment we've had the last few weeks.  If the RVX is predictive, however, I'll be in for a roller coaster ride this month.

Trade Catchup

Iron Condor
This month I did something I swore I wouldn't do: I rode an iron condor position all the way to expiry.  Almost daily I took a good hard look at the position, and just didn't see a reason to close it.  It was somewhat underwater and getting worse as the gamma spiked up, but it wasn't through any of the strikes yet.  I reasoned that the increased loss incurred after the short strike went into the money didn't outweigh, on probability-weighted terms, the near-instant profit up to max I stood to make if it settled where it traded nearly all week last week.  If I had seen an inkling of a bullish follow-through in the Russell (my IC index), things would have been different.

I would have much preferred to get out of the IC early like I usually do, but it was a headache the whole way this month, trending up like crazy and refusing to give me any pullbacks to use for exiting opportunities.  Until the last week before expiry, that is.

With the market sell-off last week, we had a minor RVX spike, which I took advantage of by initiating the March condor position on Thursday.  I never did open a February position - January was keeping me busy, and the implied volatility was crappy.  March is already proving to be better than January, in that yesterday the call spreads inexplicably were priced at only a little higher than half what I sold them for.  I covered a couple of them, leaving most of the rest on.  March's strikes are 690/700/860/870, and they generated 2.35/contract in income when opened.

CiG
The big news is that the Collaboration is Good trade fired a buy signal on gold futures yesterday at the close.  Gold has had an ugly 3-week sell-off, and honestly I was starting to be concerned about my other gold positions in GLD, GDX, AEM, and GLD calls.  Gold futures have a $6750 margin requirement per contract, so I was glad this trade was in the paperMoney account, saving myself some sleep. Also, buying a gold futures contract after a 100-point sell-off would be a lot tougher in a real-money account, especially since with a contract size of 100oz, I'm looking at $100 per point per contract.  That's a lot of leverage: 100 oz of gold, with a street value of more than $130,000, for $6750.

Today the position started about 5pts in the red and continued to slide, bottoming out at about -7pts before gold suddenly started to go parabolic on an intraday basis before the FOMC announcement at 1:15 CST.  By the close, a profit-exit signal had fired, and I closed the position with a nice $1100 profit.  It rallied so hard during and after FOMC that it started to encourage me about my other gold positions.  A good hard rally after a CiG buy signal, historically, seems to result in some follow-through.

NeighborTrader, who was running this with real actual money, claimed he was going home to vomit into a trash can after closing his position this afternoon.   Sounds like it's time to increase the size...

Earnings Plays
Microsoft and Starbucks announce earnings this week: Microsoft tomorrow and Starbucks as I write this.  I have a sizable Microsoft position already, so I bought some puts on it as a hedge in case the stock slides after the announcement.  On the other hand, I have no position in Starbucks stock - but I have a natural short position in their products (nerdy trading humor, meaning I drink a lot of their coffee).  The market has been room-temperature on Starbucks for some time (insert more nerdy humor about room-temperature coffee here, if you like), and I recently saw some compelling arguments why a good report should send the stock higher overnight, so I bought some calls.  The conference call is still going on, but the numbers are out: Starbucks beat estimates and jumped its income by 44% this quarter, so of course the stock immediately slumped by 2.5% after losing 1% throughout the trading day.  Apparently they didn't raise their guidance enough to make everyone happy.

Oh well.

How should I root for Microsoft tomorrow?  Should I root for bad news, making a lot of money on the puts while watching my Microsoft position suffer?  Yeah, that's probably the best play, because I can use the profit from the puts to buy more stock at bargain prices.  Microsoft is a money-generating machine, and its stock price just makes no sense.

Collar
The most boring trade in my portfolio, the Nasdaq Collar, saw its covered call for January expire worthless last weekend, and I opened a new covered call position for February with a strike of 58.  Ho-hum.

Predestined for Failure

Old Business
As I have noted recently, I am running about two to three days behind posting my trading activity.  There are a number of excuses for this, of course, and none of them all that valid.  I have also lagged behind in reading the blogs of others, and this morning I read an excellent post from one of my favorite options bloggers, Mark Wolfinger.  Unfortunately for my Iron Condor trade, I read it 11 days late. 

In this post he discusses the correct strike-pricing for protective debit spread adjustments.  He states several times that one should never buy farther OTM options than the iron condor itself, and that's exactly what I did.  Over the next few months, I need to reflect on this and tweak my adjustment strategy.  I'm hoping using this advice will help flatten out my returns, because I'm experiencing somewhat more volatility and stress than I would like, given the low income potential of this trade.

The AAII Sentiment Survey for 12/15/2010 still shows some very bullish investors out there, although slightly fewer than last week: 50% are bullish, down from 53% on 12/8/2010.  As expected, this results in a continued no-position for CS|MACO, which doesn't participate in trends that are fueled by investor mania.

New Business
I bought some Research in Motion (RIMM) puts this morning at the last minute.  I generally like to buy these a week or two before the earnings release, but I wasn't paying close attention and missed out.  RIMM has always been one of my favorite shorts during earnings season, and I personally think that they have no future without a major retooling of their business.  Nobody talks about "Crackberry" anymore, now it's Android this and Android that, with the occasional fan-boy crowing about iPhone coming to Verizon (still).  I was expecting RIMM to admit a further reduction in its market share, disappoint on earnings numbers, and guide lower for next quarter.  But that didn't happen, and when I left the office in disgust, RIMM was up 5%.  So tomorrow I'll unload the put for a 50% loss and move on.

Another put position I entered today was Kinder Morgan Energy Partners (KMP).  KMP owns and manages energy transportation and storage facilities in North America.  It has a positive correlation to natural gas prices, but not a dramatically high one because its income is fee-based.  Thus KMP's income fluctuates more with demand for natural gas than with natural gas itself.  KMP has a big dividend yield: 6.3%  So why short it?  Oh let me count the ways:

1. Jim Cramer loves it, and he usually loves at the top and hates at the bottom.
2. They have a $22B market cap, revenue of $8B, $192M in cash, and $13B in debt.  Debt is more than 50% of the market cap, and nearly 68x higher than cash reserves.  That means they're using debt to finance their dividends.
3. Quarterly earnings have declined 10.8% since this time last year, to $1.25/share.  Dividends are $4.44 per share, so they're also paying more in dividends than they're earning in profits.
4. They need to quadruple their profits in order to cover those dividends, but the highest praise that Cramer can come up with is that high dividend stocks are good in a rising interest rate environment.  Yes, true.  But that doesn't solve KMP's internal fiscal problems.

This stock needs to fall.  I bought some March 2011 puts on it, and I'm working orders to buy some more on a rally.  I don't know when it will fall or how far, but my puts are there to profit when it does.

Last but not least, I bought some calls on GLD (Gold ETF) today, expiring in March.  If the current short-term sell-off continues, I'll buy some more.  I'm looking for a GLD price above 150 by expiry.  That would be a massive return on the call investment.

Now I Can Afford That Operation

The CiG trade, which bought Eurodollars on an entry signal a week ago, finally gave an exit signal on Monday at the close, so I exited the position by selling GEH1 at 99.59.  That gives a $75 profit.  Since I trade this in paperMoney, I wasn't paying a great deal of attention to how much I should trade, but this one really brought that home.  The risk of one Eurodollar contract is not equal to the risk of one S&P contract - not even close - and the margin requirements reflect that.  Eurodollars carry a margin requirement of $877.50 per contract, while S&P futures require $5625 per contract.  In order to take the same amount of risk, I should be trading 6-7 Eurodollars for every contract of S&P I'm willing to commit margin for.  If I had, this $75 profit would have been $450-525... very similar to the $500 I made on the S&P signal.

In other news, one of my Iron Condor exiting orders also filled on Monday, closing out my remaining 660/650 put spreads.  This leaves my protective debit put spreads on with nothing to protect, and it also tilts the delta into the negative territory again: -20.  With December expiry coming this weekend, and with implied volatility near its 52-week lows, it seems best to close this one out.  I'm working orders to close the two call spreads - the original 810/820 and the kite-component 830/840, the naked long 820-call of the kite, and the protective 630/640 put debit spreads.  Since my current position still has positive theta, though, I see no reason to rush things.  Either way the market moves it will approach my exiting limit orders, so hopefully over the next week or two we'll get a little end-of-year waggle so I can squeeze out a few cents per contract on the way out.  If not, I have a month before I have to make a final decision.  Once theta goes negative, or if delta gets uglier, the pressure will be on to make that decision a bit sooner.

I've had a limit-sell order working on Microsoft for a few weeks now, and it filled today.  I'm still a believer in the stock, but I bought quite a few shares of it when it was depressed, so I'm just rotating some capital out to bring my position value back down where I want it to be.  Readers of my facebook notes will recall that I had 5 "units" of capital in Microsoft.  This sell brings me back down to 5 units of capital in position value.

I'm expecting another increasingly bullish (for me that means bearish) sentiment survey this week, released tonight sometime.  If that's true, CS|MACO will still stand by and watch the Fed Cheerleaders... er, I mean Stock Market... without getting involved itself.

Such a Slacker

I've been distracted most evenings lately from the four Xbox games I picked up during Black Friday madness, and so it has taken me even longer than usual to record thoughts, trades, and rambling nonsense.  As if that weren't enough to eat up my attention, the Bintgoddess and I just received our HTC Incredibles we ordered through Amazon Wireless, and I at least have been spending more time than I should customizing and moving into my new phone.  I had intended to switch from AT&T+iPhone to Verizon+Android when my contract ran out in August, but the Bintgoddess' pre-pay plan ran out of minutes, and we could save more money to switch us both to a family plan now, despite the early termination fee from AT&T.  With nearly free phones (1 cent each from Amazon Wireless) and free 2-day shipping, the choice was pretty clear.  And yes, Amazon did charge my credit card $0.02.  Silliness.

Iron Condor
The January 2011 Iron Condor position has required some adjustment to keep it close to delta-neutral recently.  Recall that I opened a 650/660/810/820 iron condor on Nov 8, and then adjusted it Nov 16 by buying a 630/640 put spread.  Since we're into December, I'm now erring on the side of closing positions rather than opening them - but I'll still increase a position if it's the right thing to do for the risk or the greeks.

The stock market had been rallying pretty hard the last week or two - in fact, it has been rallying pretty hard ever since the day after I put on that downside protection.  This is not a surprise - it's just how I roll: don't believe me? watch me play poker on Full Tilt sometime.  But I digress.  With the stock market rallying and delta going pretty negative, it was time for some upside protection.

First, I bought back about half of the 810/820 call spreads for 1.40: a very reasonable 10c loss.  This moved the delta up about halfway to where it needed to be, but gamma was still pretty negative.  Another up-move and the position would be in trouble again, so I beat the rush and put on a Wolfinger Kite Spread.  Specifically, I bought back an extra 810 call for 3.70, and financed that by selling four 830/840 call spreads for 50c each.  Not only did this bring delta to a nice manageable level and give me some much-needed upside protection, it also significantly improved my max-loss on the upside.  Of course if MDW is reading this blog, he's probably seething that it isn't a perfect Kite Spread - I should have sold the 840/850s, or reduced the sales by 1 contract.  Tough.  I am convinced this was the right trade to make, whether it can rightfully be called a Kite or not.

The next day, I took advantage of another rally to buy back a few of the 660/650 put spreads for 45c.  This lowered delta a bit again, but like the previous day's adjustment, it really helped out in the max-loss department.  The total position now has a nice flat S-curve to it, and theta miraculously is still 13.  So a sideways market for the next 30 days should net me about .25 per contract - that may not sound like much, but that's 2.5% margin-return on a monthly trade.

It's also about time to be looking for a February trade, but I'll learn my lesson from January and wait for volatility to come up a bit.  Using paperMoney is nice, because I have so much fake margin in there that I can make trading decisions without having to be concerned about margin.  If I want to put on February before taking off January, so be it.  Doing that with real funds would take some very careful money management... or more money than I have.

CS|MACO
Still very bearish signals (53% are bullish as of last night, way too many for my taste) from investors, who happen to be right this time about the market as it sustains an uptrend, and bullish signals from the trend following MACO component.  As a result, it still waits in (fake) cash.

CiG
Eurodollar futures (GEH1) gave a bullish entry signal on Tuesday, so I bought them at the stock market close for 99.56.  Trading Eurodollar futures is similar to watching a bad horror movie: long periods of mind-numbing boredom punctuated by moments of pure terror.  So far I'm in the boredom phase - two days after buying them, I'm up 3 ticks.  W00t!  No exit signal yet, so I wait.

Big News for Boring Trades

It's been a busy few days.  The CiG trade finally fired a signal on Friday, but I was in Colorado all weekend so I didn't have time to write it up.  Then I came home with a head-cold just in time to support a major roll-out at the office that went pretty wrong.  By the time I got home last night all I wanted to do was sleep.  So now here we are.  Excuses excuses.
 
Saving Money While Asleep
First the CiG trade on Friday.  You may recall I decided to run it on S&P futures as well as treasury note futures, because I feared that treasury notes would bore me to death.  On Friday, it signaled a buy-on-close on the S&P, so I did.  Things were looking good Monday morning, but not good enough to reach the target exit signal.  By this morning, the whole world was fleeing from risk again and the stock market opened significantly lower.  Since there are no clearly-defined stop rules, I decided to sell the position for a loss shortly after the stock market opened.  I felt that what we were seeing was not a momentary blip but in fact a setup for a selling day.  I was right: I sold the position at 1188 at 9:00.  At the 3:00 close, ES was down to 1176.

Because CiG tries to buy on dips, though, it had another buy signal come out on ES today.  Pleased at my ability to dodge at least some of the sell-off today, I decided to get back in with a new long position at the close.  So I'm still long from Friday, but I took a 12-point ($550/contract) hiatus.  That's almost a winning trade all by itself.  Not a bad money-saving siesta.

No joy in treasury note futures yet.  Yawn.

Insert Spy Pun Here
CS|MACO, another boring trade, is finally starting to see some life.  It has been locked flat while SPY has rallied over the last 3 months, due to the bearish signal coming out of the contrarian investor sentiment component and the bullish signal coming out of the moving-average-crossover component.  One of those two opposing forces was removed today when SPY closed below its 25-day moving average, breaking the SPY>25MA>200MA relationship that has been in place since October 4.  That's not a sell signal yet, though, because the terms of the trade state that I won't enter a position on the removal of a signal.  I need the CS component to affirm its bearishness tomorrow after the close before I can short this puppy.

A Boring Iron Condor is a Good Iron Condor
Unfortunately, this one is starting to get a little exciting.  When I opened the position I groused about my poor judgment a little bit regarding the low price I was paid to initiate.  Sure enough, the VIX almost immediately rallied while RUT flagged, causing my delta to increase as I rode the curve down toward my put spread.  Delta of +16 this morning, so time to adjust already.

It seems ridiculously early to be thinking about exit orders, but I could buy back my call spreads for only 60c already; so I put in some limit orders to buy back at 20c.  That doesn't help my delta, but it does lock in a profit on half the trade - and with some careful adjustment the other half might not cost too much.

As for the put spreads, I looked at the mouse-ear like I used last month and decided it was overkill: RUT was 710 or so when I was adjusting, and my put spreads are 660/650s.  A mouse-ear would throw my delta so horribly negative that I would have to buy back most if not all of my call spreads to contain it.  Plus it was crazy-expensive, at $21.

The next thing I looked at was simply reducing the call spread position.  That would certainly help the delta and the feel of the position, but I felt the cost was a little high.  A variant of this is to roll the call spread down a few strikes, also increasing the position a bit to finance the roll.  This increases risk, and I wasn't happy with the outcome or my perception of the risk-reward trade-off.

I also looked at Wolfinger's Kite Spread, which involves a naked long OTM put and a credit put spread even farther OTM with 3-4x the size on it for financing.  That had some real potential, but it really hurt the theta.  Ultimately I decided I could achieve my delta goals and flatten the value graph best by putting on some 630/640 debit put spreads.  I bought just enough (at 1.90) to get the delta under +5.  By the close, the delta was back up to +5 again, but that's within my parameters.

Boring News for Big Trades
I'm still not holding GLD calls, and I'm glad.  I'm looking for bargains in some of the mining companies right now, but I haven't had time to look very hard yet.  Earnings season is upon us, and if I can capture a couple of positive earnings surprises before the event-driven IV goes through the roof, I'll be a happy camper.

January Iron Condor

As I planned on Friday, this morning I closed the rest of my December RUT iron condor position for a total profit of 86c per original contract.  I opened the December position on 6 October, so that means I had just about an 8% return on initial margin over the past month.  By normal investing standards, that's an amazing return, but let's put this in context: the same strategy lost 7% on its November position and just under 2% on its October position.  To a normal buy & hold investor, this is pretty frightening levels of risk; to a professional in the futures industry that plays poker and trades options on the side, 8% in a month is bordering on boring.  All a matter of perspective.

On 15 October, I made a pretty big delta adjustment by buying a 760 call.  The original call spread was 770/780, so this is what is known as a "mouse-ear" adjustment.  This is one of the most expensive adjustments that can be made, but also one of the most effective.  I feel like given the market action during that time I should have taken a less extreme approach, but after the prior two losing months I was a little gun-shy.  Despite leaving some profit on the table by solving a minor problem with a big hammer, my confidence definitely benefited from a nice smooth month of price action resulting in a near-target profit.

I also opened a January 2011 position (650/660/810/820) this morning, although with implied volatility as low as it is I don't feel that great about the price I managed to get for it: only a 2.90 credit.  This is a little on the low side, and that reflects the low VIX environment that we're in.  I probably should have waited until VIX popped back up some, but this puts me into unfamiliar territory: I know that a good price during this time-frame is about 3.50, but I'm not quite sure what a good price is a week or more from now.  Rather than sail into unfamiliar waters, I chose to limit my profits over the next month or so.  I'm not sure that was a great decision, but I will persevere.

This is why we paper-trade.

By the way, if anyone tells you how easy it is to make money with Iron Condors, don't believe them - and definitely don't give them any money to manage.  It is a very difficult strategy that takes a lot of creativity and experience to manage effectively.  I'm certainly not an expert, and it might be tempting to discount my assertions of how difficult it is; but clearing companies' databases are littered with busted accounts that jumped into the trade without an appreciation for its subtlety and dangers.  I am determined to learn this trade and how to profit with it, and to succeed where so many others have failed.

Speaking of boring trades, CS|MACO is still dead-locked flat as CS is screaming short and MACO is screaming long.  Remember I said a trending market is not CS|MACO's friend? Yeah.  The other boring one is the trade I wrote up in Collaboration is Good, which apparently I haven't named - let's call it CiG.  No trades in 10-year note futures there, either, so I think I'll start running it in S&P and Eurodollar futures also.  I ran back through the chart for the last couple of weeks, and it wouldn't have traded anyway, so I haven't missed anything.

Iron Condor: December Adjustments

The upside protection I added to the December iron condor on October 15 has proven to be a profitable adjustment.  As the market wandered higher, I was able to bleed off theta while keeping the position pretty close to delta-neutral.  I've had some low-ball exiting orders working for a while, since getting out is still in front of me, and yesterday one of those orders filled, closing out a portion of my 620/610 put spread and locking in a nice profit on that portion. 

My work schedule yesterday was weird, so I didn't actually notice the fill until this morning before the open.  When I came in this morning, I discovered that between the closing of part of the put spread and the traveling of the market down the curve toward my call spread, my overall position was -20 delta.  That's a lot more delta-negative than I want it to be, so I started looking at ways to adjust it again.

My original plan was to bring the delta back to nearly 0 without turning the theta negative or increasing the overall risk, since after all I have only a little more than a month before expiry, and increasing position at this stage would be kind of dumb.  But the more analysis I do, it seems the best choice is to just close the position entirely.  From where the market closed today, net liquidation value on the position is about 82c per contract.  That's pretty close to the 1.00/contract level that I said made me "thrilled", so that's just fine.

I had already started working orders to adjust the delta before the close, and when I do that I always make the position-decreasing orders more aggressive than the position-increasing orders.  Today was a good example of why I do this, since only one of my orders filled and I didn't have a chance to adjust my other orders to make sure they filled on the close.  As it turns out, that's just as well, since I think I want to cancel my position-increasing orders anyway.

My original plan was to roll the 770/780 call spreads up to 790/800, also decreasing the position.  This costs a fair amount of cash, but it also brings my delta up to +4 again, and makes theta a very healthy +9.  But what am I really gaining by opening that 790/800 position?  My thinking was that I needed to partially finance the 770/780 call spreads, but if I can make 82% of my "thrilled" level just by closing the position, there's no financing I need to do.

So here's my current position, which reflects the partial closing the 770/780 call spreads, but nothing else.  Delta is all out of whack the other way, at +17, and theta is right at 0.  I've got orders working to close the rest a little behind the market.  Once it's open on Monday, I'll adjust everything around to be just about at the market, and put this December iron condor to rest.

Then I'll start looking at opening a new January position.

In other news, I was at the FIA Futures and Options Expo on Wednesday and chatted a bit with the people at the Think or Swim booth about why they're so mean about screen shots.  I actually talked to a young lady who works with Scott Garland, and she indicated that everyone there is nervous about overstepping their bounds with TD Ameritrade, the recent purchasers of Think or Swim.  So far TDA has more less left them alone, but the concern is that they'll get a lot more involved in the day-to-day business instead of just treating ToS like a profit center.

I understand their perspective, but I'm still a little steamed that I can't accurately depict my current position value here because of their concerns about intellectual property.

Collaboration is Good

NeighborTrader has been making some comments lately about a trade he has been backtesting.  At first, he was trying to work out a way to make it an intraday trade so that he could run it at the office as part of his job.  A fairly new trader like him tends to prefer that route, because he has a lot more resources to throw at it sooner if it goes well than if he has to save his money to cover the margin.  Unfortunately for him, after playing with a lot of different variables he came to the conclusion that the trade worked best on daily charts, which means long-term holding times.  Since our firm has a day-trading culture and isn't really set up from a risk-management standpoint to hold trades for more than a few hours, that pretty much precludes him running it as part of his job.

Knowing that I've been running long-term trades in paperMoney, he chatted with me yesterday about his trade and the methodology he was using to backtest it.  I have to admit, I'm pretty impressed at how rigorous he's being with it considering: (a) he has no academic or professional experience with formal backtesting; and (b) it's something he's doing for himself on the weekends and committing very little capital to.  He even went so far as to buy historical data, something most of the guys at the office don't do for their big trades.  He also bought a book to learn proper backtesting methods to minimize the chance of sample bias and curve-fitting.

Since it's his trade, I don't think it's right for me to go into it in detail on a public blog.  He gave me all the information I need to run it myself, and suggested some products to run it in, and I plan to do so, although I can't think of a good name for it right now.  But I'll leave the parameters a little hazy to protect his intellectual property.  Suffice to say that it is pretty similar to CS|MACO in that it looks to enter positions contrary to market consensus, but only to do so when it isn't fighting a strong trend.  It seeks to buy dips and sell spikes, and it's purely technical, using indicators widely available on most charting packages.  It also trades very infrequently, so I might have to run it on more than one product just to avoid being bored.

He's been running it in S&P-500 Futures (it needs a lot of leverage to succeed, and he understands futures very well since that's his job) and a couple of other products.  He just exited a trade in it today for a nice fat profit.  Since I already have CS|MACO running on SPY (the S&P-500 ETF), and I have other trades running on other equity indexes (Iron Condors on Russell, Collars on Nasdaq-100), I think I'll run it against US Treasury 10-year Note Futures.  This trades at the CME since they merged with CBOT, and it's available in paperMoney. 

Speaking of CS|MACO, it's been quiet for a while now.  Individual investors have stayed bullish (they've been right for once), and SPY has stayed above its 25-day moving average.  Long+short = flat, so I've been watching this whole move from the sidelines.  The last couple of weeks haven't been good for any trade except iron condors, with the stock market going pretty much sideways.  Something has to give with CS|MACO soon, though, because the 25-day moving average and the closing price are converging.

Assorted Trades

Iron Condor
On Friday, I decided to add a little up-side protection to my December Iron Condor.  I'm trying to act when delta starts getting out of whack, and after a few days of stock market rallies the Dec IC was looking at a delta of about -20.  Sadly I can't be more precise on this because I forgot to jot it down (mental hand-slap).  Anyway, I decided the adjustment that made the most sense was to buy a Dec 760 call.  With my IC strikes at 610/620/770/780, this puts the naked-long call just one strike below my short call.  This adjustment brought my delta up to about +4 as of now, and didn't hurt the theta too much - still nearly 21.  It cost me 9.50, which is a big chunk of change, but I expect it to be the only upside adjustment I'll need to make to this position.

Until I come up with a better solution than Excel, unfortunately I can only display value-at-expiry.  Trust me when I say that current portfolio value is a lot curvier and much more attractive than this.

QQQQ Collar
Also on Friday, my October covered call on QQQQ as part of the collar trade expired in the money and I was assigned on the call.  Pursuant to the rules I set forth in September, I bought QQQQ back this morning at 51.50 and sold calls against it with a strike price of 53 for 56c.  Here are those rules again, since I keep having to search Facebook Notes for the numbers:

1. Monthly calls to be about 3%, and no less than 2.5%, out of the money.
2. 6-month put to be 8% out of the money.
3. No rolling prior to expiry.

Gold Leverage
I am still long-term bullish on gold, and I express that by being long GLD, GDX, and AEM.  I also currently have some Dec calls on GLD that are so profitable that I have sold off enough to cover my original investment and the remainder are worth almost twice what I paid for the whole stack.  Nevertheless, I'm becoming concerned with the borderline irrational expectations for QE2 lately, so I'm ready to take some profits.  I started working a fairly distant sell order on the rest of my GLD calls this morning.  Hopefully it will reach my target price and I'll exit there, but I also have a time limit on this trade; I'll exit when that time limit expires regardless of the price action.

December Iron Condor

In another of my paperMoney trades, I experiment with iron condors.  Today I opened a position on my next month's iron condor, expiring in December, on RUT.  RUT is the Russell 2000 index, and options on it are European-style and cash-settled.  This means they cannot be exercised early (very important for spreading), and in-the-money options at expiry won't cause securities to change hands - just money.  Settlement at expiry is weird, though, so it's best not to take them to expiry in any case.

WTF is an Iron Condor?
An iron condor is a market-neutral option strategy that is short volatility but with limited profit/loss ranges.  It consists of two vertical spreads: a put spread below the current index price, and a call spread above the current index price.  The long options in the spreads are both farther OTM than the short options, so opening an iron condor position generates a credit.  The farther apart the short option strikes are from each other, the lower the risk that the iron condor will lose money, but the less credit it generates on opening.

A picture is worth a thousand words.  Luckily for you, I have both.  Check out this page from Option Trading Tips:  Iron Condor Description.  I'm working on getting permission from ThinkOrSwim to include screen shots from their software.  In the meantime, this is the best I can do, sorry.

Terminology does not agree on how to refer to iron condors that generate a credit when opened.  They consist of two short vertical spreads, but many (including the website above) call that combination a Long Condor.  To me, selling means that I get money; buying means that I give up money.  So throughout this blog I will rightly or wrongly refer to iron condors like they're short: I sell them to open them and I buy them to get out.  So today I sold an iron condor, opening a short position, and I generated cash.  Questions? No? Excellent.

Where To Begin...
Here I have to give Mark Wolfinger props again, because about a year ago I looked at iron condors briefly when a co-worker (not a professional trader, in this case) told me about how he was making a guaranteed 10%/month on them.  This seemed too good to be true, and after analyzing them a little I decided that it was: the probability-weighted return on his capital was far too low for the risk of ruin he was taking.  I dismissed iron condors as hardly better than naked option selling, and was ready to leave it at that.  In the process, however, I ran into Mark Wolfinger's blog Options for Rookies, and I started reading it regularly.  Over the next few months I realized that there was more to iron condor trading than I first assumed.  Guaranteeing 10%/month was indeed too good to be true, as I suspected.  But there was nevertheless a viable trade there for someone willing to put in the time and effort to build experience.  A firm believer that nothing worth doing is easy, I set out to learn.  I'm just getting started on that journey, and though it will never end, I hope that soon I will have made enough progress to begin profiting from it.  I don't know when that will be, but I know it isn't now yet.

I've followed MW's lead in a lot of respects, because I am more of a learn-by-doer than a learn-by-reader.  As I try different approaches and find my own comfort zones and style, I start to diverge from him; this is natural.  But some aspects of his trade are relatively arbitrary from my perspective:  he trades RUT because he feels that its volatility is not-too-high but not-too-small; he trades options with 60+ days to expiry because he feels that is the right mix of risk (gamma) and reward (theta).  Never having traded iron condors on any index, and never gotten burned in either direction in time-to-expiry, I figured 60+ days on RUT was as good a place to start as any.

My Own Trading Style
My current behavior pattern is to start looking for a new iron condor position around the first of the month two months before expiry.  This gives me 60-80 days or so before expiry.  Also like Mark, I look to get out of the condor early if the market is willing to let me buy back pieces of it at good prices.  I don't try to choose a low-risk / low-reward condor that I never have to adjust, but I try to give it enough room to move that I can make adjustment decisions after work for trading on the open the next day.  Taking some of his lessons to heart, I try not to increase my position in the course of adjustments; however, I will do so if I have previously reduced the position via cheap buy-backs.  I try very hard to evaluate what the position is now, instead of whether I'm up or down from my entry point.  This is a lot harder than it sounds, but Mark harps on it so much that it is starting to sink in.

In Theory, There Is No Difference Between Theory and Practice
A perfect situation in my trading style is to find a new iron condor on, say, October 1 for December expiry that I can put on generating 3.50 or so in premium while keeping the two short options a good 15-20 strikes apart.  For this situation to remain perfect, the market needs to move up and down some so I can cheaply (like 20c or so) get out of the two spread legs, but not so much that I feel I need to adjust to protect my position.  The perfect scenario ends about 30 days before expiry when I exit the last position without ever having to adjust.  Net profit when perfect: nearly $3.00 per contract, or about 30% on margin risked.

But In Practice, There Is
In reality, that scenario never happens.  I always have to adjust, I always agonize over how much insurance to buy and when, I seldom pay as little as 20c to buy back my spreads, I frequently enter the position for less than 3.50 credit, and I often find myself still trying to dump some position off with only 2 weeks to go.

I often have two condors on at any given time: one that I'm adjusting and working my way out of, and one that I'm watching eat up theta prior to its first adjustment.  If I end up with over 1.00 per original contract profit, I'm thrilled. Note that because of adjustments, 1.00 per original contract is a lot less than 10% margin profit, because the margin gets bigger and the profits get smaller with insurance.  If my net cash flows are positive at the end of a condor run, I'm satisfied.  If I learn something along the way, it's all worth it.

I'm slowly starting to get a feel for what values of delta make me nervous, and I'm better at choosing adjustments that don't give me a negative theta, since that would negate the whole purpose.  I'm always massively short vega, since that's the nature of an iron condor; and gamma doesn't really affect me too much 60 days out.  It is nevertheless always the shadow in the corner, and I keep an eye on it more and more the closer to expiry I find myself.  Experience has come very slowly, but it is starting to click.  That's a cool feeling.

Current Situation
Right now I have a heavily-adjusted November position on.  It's too complicated to explain without charts, so I won't try.  But despite the drop in volatility the past couple of days as the market rallied, I was able to put on my December iron condor position for my target price of 3.50.  It's a little tighter (short strikes are closer together) than some previous months, but I'm also getting a little more comfortable with adjustments; this lets me generate more premium credit at the start without so much fear.  My new RUT December condor is a 610/620/770/780, meaning that I am long the 610 puts and the 780 calls, and short the 620 puts and 770 calls.  Max profit: the 3.50 credit it generated.  Max loss: 6.50.