AUXL – how to take a max loss on an Iron Condor

Posted by: Admin: "The Vol_Trader"  //  Category: Volatility Trades

On 29-Apr-2010 I posted a trade on AUXL CLICK HERE to see it.

Here’s how this trade played out:

The underlying moved sideways which was desirable however, the IV never went down.  In fact, it went up and I was holding the condor waiting for time decay or a IV decrease. I had a very small window of opportunity to take a very small profit, but I held and waited it out. 

I WAS WRONG.

The underlying quickly moved lower past my lower breakeven.  I put in an order to take a small loss but it never executed at my price and I refused to pay up too much above theoretical pricing.  This is a MISTAKE when trading less liquid products.

I’m still holding onto the spread.  It’s not worth closing now.  I put in an order to buy back the Call portion for a few cents and will accept the max loss unless there’s an explosive move to the upside. 

Below is the Chart and P&L: (click to enlarge)

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AUXL – Vol is crushing as I write…

Posted by: Admin: "The Vol_Trader"  //  Category: Earnings Trades, Volatility Trades

As you can see from the 5 minute chart below, AUXL dipped down in the premarket to $34.50 and is currently trading at $35.63, down $0.03. 

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I am watching the chart of Implied Volatility in LiveVol Pro software, pictured below.  I can see right before my eyes the IV dropping and concurrently seeing increasing profit in my Thinkorswim platform.  The horizontal line is the IV on Friday around 45%, and just above 43% this AM. 

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End of day Friday we were at a $500 loss.  As of right now we’re up $812.50 for a total of up $312.50.  The conference call is scheduled to start in less than 10 minutes.  The conference call may move the underlying which is currently not moving much, but it may also remove more unknown and be another ‘Vol Event’ and help our trade.

My decision: I’ll sell half now and let the remaining half stand for now.

Stay tuned.

AUXL – Earnings update

Posted by: Admin: "The Vol_Trader"  //  Category: Earnings Trades, Volatility Trades

Friday morning we sold an Iron Condor on AUXL in anticipation of their earnings release this morning (Monday) before market open. As of 7:43 AM Monday morning the underlying has not traded any shares pre-market.  Reuters is reporting, “Q1 loss narrower than expected” at loss of $0.18 vs. an estimated loss of $0.32.

When you’re short an iron condor ‘no news is good news’.  The fact that no shares have traded premarket is a good sign to me but we’ll wait for the open to count our [drop in IV] money.

Here’s an interesting note on this trade:  Friday I checked the status of this trade between surgeries.  (Yes, I look at the market between surgery patients. No, it doesn’t affect the surgeries.)  Mid day this trade was losing over $1,300 because IV went up significantly.  We entered the trade for a credit of $1.05 per spread.  On Friday, I tried to sell an additional 25 contract spread for then current mid-price of $1.60.  That would have increased my credit to an average price of $1.325 per spread but it never executed.  Oh well, that’s part of the price for using a less liquid underlying.  At the close the spread was trading $1.25 at the mid-price (-$500).

I’ll update you some time today on the status after the market opens.

An Earnings trade in AUXL – Earnings 5/3/10 BMO

Posted by: Admin: "The Vol_Trader"  //  Category: Earnings Trades, Volatility Trades

I’ve been unusually busy in my ‘real job’ as a physician.  Sorry for not posting in a week…

I spent a little while scanning the LiveVol Pro earnings calendar and found a stock that has performed quite well as far as Vol Crush after earnings.  Looking at the ‘Earnings and Divis’ tab, AUXL has made money five out the past six earnings releases by selling the back month straddle.  See the charts below: (CLICK all pictures to enlarge them)

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As you can see by looking at the yellow line in the top row of charts, the $ value of the back month straddle decreased in all except the Oct 2008 earnings release.

Investigating the Oct 2008 release reveals an interesting event.  The IV did not Crush after earnings.  I’m guessing there was a ‘Vol Event’ other than earnings priced in here as this IS a Pharm company.  Also, the stock had a pretty large downward move right before earnings.  You can see in the below 2 year chart of IV that the vol did in fact, not crush at earnings.  This earnings does not seem to have these two factors to deal with from my research.

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The below Thinkorswim analyze tab is showing the sale of the front month straddle is predicting a move between 31.68 and 38.32 with the underlying currently trading at $35.99.

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Rather than sell a naked Straddle, I’m going to buy wings and sell an iron condor. Here’s the trade: All options are Jun expiry, back month.  -25 $37.50 call /+25 $40 call /-25 $32.50 put /+25 $30 put for a credit of $1.10 per condor.

The Thinkorswim P&L chart is below:  I like that the breakevens are wider than the predicted front month straddle’s move.  I like that the chart is skewed to allow for a large downside move than upside as I feel the risk is to the downside.

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I plan on taking all or partial profits immediately after earnings.  Stay tuned for results.

www.livevol.blogspot.com  is a must read if you like my blog. Also, check out www.livevol.com for their software. 

Another must read is www.option911.com . Mark Sebastian is an amazing authority on Vol Trading.

*this is not a trade recommendation.