How I’m Adjusting My Trades During This Market Sell-Off

by Options Sensei

Yesterday, I discussed how, when, and why I make adjustments to existing positions and now we have a live example of this process in action. Last week, I laid out the iron condor position I’d established in PayPal (PYPL), which was an iron condor that used the 190/195-215/220 strikes as my structure for this Friday, 11/30, as the expiration date.  The initial position collected $1.50 of premium — ours to keep if shares stayed with the 195-215 level. I thought this was a good way to gather short-term premium collection prior to the PYPL earnings report on Nov 2. Ahh, but the best-laid plans can be washed away by macro events.

Over the past week, the major indices such as SPDR 500 (SPY) and Nasdaq 100 (QQQ), have declined some 7%, as they’re rapidly approaching 10% “correction” territory. PYPL has dropped a less severe 4% since we established the position. However, it’s still threatening the 195 strike put. This is how the original positions risk/reward graph presently looks:

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paypal snapshot analysis

Sensing market weakness on Tuesday, I rolled the 215/220 call spread down to the 210/25 strikes for a $0.50 credit. As the market continued to sell-off, I took another roll, bringing the call spread down to the 20/210 strikes for an additional $0.50 credit. I’ve now collected $3.00 for the iron condor, and the risk/reward profile looks like this.

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paypal snapshot analysis 2020

Despite PYPL shares — currently at $193 and breaching the 195 put — the position is still showing a modest profit. This is due to active and aggressive risk management where I rolled the iron condor call side to collect the additional premium. The result is twofold — reducing my overall risk and, believe it or not, increasing my profit potential. Now, if PYPL bounces back above $195 by Friday, I can profit by $250 per contract, rather than the original $150;  a 66% increase in my profit potential while the risk drops from $3.50 to just $1.50. I like those odds.

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