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.

BAD DECISION

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 aeromir.com for more.