Position updates…
Dear valued subscribers,
Sorry for this much-delayed update. Things have been rather busy here. I can only hope for your understanding.
Ok, let’s get started by talking about the S&P500 (SPX). Since the last update (last week), SPX has climbed steadily to close at a new high of 1448 on Friday. Looking at the chart, SPX closed just a bit below the trend line established since August 2006. It has already tried in two previous attempts to break that line but failed. The only resistance the SPX has now is this trend line dated back to August 2006. If it were to break through the trend line, we may see yet another bull run for SPX. Support currently is provided by the secondary trend line and the 50-day MA.
We currently have no open positions on SPX but we do have two open positions on SPY. The SPY double diagonal (DD) we initiated on 28 Nov 06 for $0.25 debit and rolled on 19 Dec 06 for $1.75 credit is currently in-the-money and worth around $1.65. We have this iron condor (IC) for a net credit of $1.50. So even if we were to close up this entire position now, we would incur a small loss of $0.15. However, with the SPX hitting resistance yet again and about 2 weeks to expiration, we will wait for the SPY to correct before closing this position. As long as we can buy back this IC for less than $1.50, we can still manage a small profit.
Similarly, we will wait for the SPY to correct before closing the IC we initiated on 4 Jan 07. Our current positions on the SPY are generating an uncomfortable amount of negative deltas. That is because the SPY is trading very near our short calls. However, as I mentioned earlier, these trades have superb risk/reward ratio when we put them on. Therefore, we’ll wait till we have a favorable condition to exit these trades.
Similar to the SPX, the Dow is also facing the resistance of the trend line established since August 2006. We currently have two DIA positions but they are not expiring in Feb so we can leave them alone for now.
The Russell 2000 (RUT) is showing most relative strength amongst the main indices. Not only it managed to break the trading range that it was bouncing between, it also managed to break the trend line established since August 2006. This is very bullish. We currently have two open positions on RUT and one on IWM (the tracking ETF). The RUT IC initiated on 12 Jan is currently showing a gain of $1.35. RUT closed at 809.42 on Friday, which is still a cool 21 points away from our Feb short 830 call. However, we will be extra careful for this IC because its risk/reward is not 1:1. We’ll look out for a suitable time to close up this trade to lock in the profits. The latest RUT IC for March was initiated on last Thursday. I have feedback from subscribers that some of them still can’t manage to get it filled by Friday. As long as you can get the price of not less than $2.25 credit, you can still put up the trade.
The IWM IC initiated on 4 Jan is currently slightly ITM and showing a small gain of $0.05. Like the other ICs for SPY and RUT that expire in Feb, we will wait for a down day to close up these positions. With the last three bullish trading sessions, a correction should happen soon. So watch out for our close advisories.
We are currently stalking a Mar SPX IC. However, with IV so low again, we may have to forgo SPX IC for Mar. We’ll be in touch!
Take care and have a nice weekend!
Gary
