Thursday, April 2, 2020

Risks of Legging In

Tom writes:

I was trading Iron Condors in the EUR/USD in 2008.

I had just started a new position and I got the calls on and the short puts, but the long puts didn't fill. It was the end of the day so I figured I would get them filled in the morning.


If you weren't following that currency pair, you might not be aware that the EUR/USD moved down seven standard deviations in a single day.

Because my long puts were not in place yet, I had a terrible loss.

I considered this a great learning opportunity. Here are a few lessons:
  • I vowed never to partially fill a defined-risk trade without the long puts in place again.
  • If I trade at the end of the session, I make sure I have no unintended short options.
  • I am more aware of the true risk I am taking. I don't over leverage SPAN margin.
  • I learned the value of having a portfolio hedge in place
See for more.

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