Catching Options…
In my previous post, we noted that our positions were safe. A week later today, we do have some results to share.
First of all, let us start by talking about the DIA double diagonal initiated on 19 Dec 06. We finally bought back the iron condor on 5 Mar for $0.80 when the market threatened to slide further. On 5 March, there was a real threat of the Dow sliding further into the red. With no nearby support in sight, we decided to close up the trade to lock in our profit. We rolled this DD into an IC for $1.20 credit. We bought it back for $0.80. Thus we made a profit of $40 per trade.
This profit could have been higher. The next day, 6 Mar, the Dow bounced. We could have bought the IC back at a lower price. In fact, if we were to buy it back today (9 Mar), we could have just paid $0.35! Well, everything’s 20/20 on hindsight. We knew that a bounce was inevitable then. We just didn’t know it would be the next day. We followed our trading rules and the market indicated that we should close up on 5 Mar. We did make a profit! Should not be whining.
Next, we’ll talk about the RUT IC initiated on 1 Feb 07. We entered this IC for $2.30 credit. On the fateful day, 5 Mar, we closed our short put spread for $2.75 debit. As mentioned earlier, there was a thick blanket of fear in the market on that day. Again RUT moved to the point that our rules say that we should close to avoid more losses. To be frank, we bought back the put spread not only on the wrong day, but also at the wrong time. As the market played out (again, if only we knew then), the price of the spread became lower. However, we did short another put spread at lower strikes after we reevaluate the chart. We did a Fibonacci retracement and figured that Mar 730/740 put spread should be safe. We shorted the Mar 730/740 put spread for $1.20 credit. This is similar to a roll down. We were specifically buying back our original short put of 760 and selling our original long put if 750 and then selling 740 put and buying 730 put. As of now, this 730/740 put spread is trading at $0.30 giving us an unrealized profit of $0.90. We may still be able to make a small profit for this trade after all.
A short call spread is what was left of our next RUT IC. We bought back the put spread for $1.65. We entered the trade for $2.00 credit. We’ll most probably let the call spread expire worthless next week. We made of small profit of $35 per trade for this IC.
Our profits will be smaller for this month. Well, but at least we showed a profit, albeit small, even though millions of dollars were wiped off the market in the past 2 weeks.
As an update for new subscribers who just joined us, we are currently stalking a few possible trade setups for April and May. The massive and volatile move in the 2 weeks had caused some of our setups to be unpractical for the coming months. We will wait for a good time to close or roll these trades. We have about 41 days to April expiration. We expect to enter some ICs in the next week or when IV returns. We’ll also want to see how the market moves in the next few sessions before putting up more trades. In fact, we’re queuing for 1 of the setups now as we speak. You’ll be informed once we can be filled at our target price.
Take care and good trading,
Gary
