Fed-up and Fed-down…
One Fed it was up, another Fed it came down. I think many must be fed-up with the Fed! The down moves for the past two sessions almost took back all of the gain on 21 Mar (a Fed day). We’ll see how we close up today. There will be no charts for this post because the market is filled with uncertainty now I don’t know what to make out of it. Ha! I think now you guys finally understand why I trade market neutral strategies! I’m sometimes quite clueless about directions! When I trade and sometimes when I drive!
Anyway, we’ll take a look at our currently-open positions for the benefit of new subscribers who just joined us and missed out on all the current trades. “I’ve signed up for days and I still haven’t received any recommendation! How do I know if he’s sleeping through the market?†I heard that! Haha… I’ve implanted a tiny microphone in your monitor so I can hear every word you say, dude!
Alright, let’s be serious, I’m sorry guys and ladies, it must be the coffee. Ok, for new subscribers or anyone else who might be thinking that I’m skiving, be patient. It’s now too late for a Apr condor (21 days to expiration), it’s too early for a May condor (49 days to expiration). It is also too late for an Apr/May double diagonal and too early for a May/Jun one. So in short, there is no trade for us now, it won’t be wise to enter a trade for the sake of having one. Do that often enough and we’ll all be broke!
Since we can’t trade new entries, let’s be a little retrospective this week and look at what we have on hand currently.
The DIA DD initiated on 21 Feb. We bought May 134 Call and May 121 Put and sold Apr 132 Call and Apr 123 Put for $0.15 debit per trade when DIA was trading at 127.32. This trade was entered before the big drop on 27 Feb. Our short Apr put of 123 was ITM for a while. Now, that the DIA is trading at 122.91, it is still ITM. We’ll most probably close this trade when we are closer to Apr expiration. We’ll hope to breakeven or maybe even try to make a tiny gain to cover the commissions. This spread is currently trading at $0.10 credit. If we close it now, we’ll lose that $0.05 per trade. The short put of 123 is too expensive to buy back now, it’s trading at $1.50, due to the high IV. We’ll wait till it gets closer to expiration to drain away the time value. This is a bad trade. While I felt bad about this trade, I’m proud of it being so resilient against the massive crash on 27 Feb, which nobody foresaw. We may suffer a little loss with this trade. But we won’t know until we actually close it.
The IWM DD initiated on 22 Feb. We bought May 89 Call and May 77 Put and sold Apr 87 Call and Apr 79 Put for $0.12 debit when IWM was trading at 81.9. IWM is currently trading at 78.84, causing our short Apr 79 Put to be ITM. The spread is now trading at $0.12 credit. We can close it now for even money but I think we can wait out a little for the IV to drop. The Apr short 79 Put is currently trading at $1.58 with only $0.22 of intrinsic value. We’ll wait for a few more days, reassess the market and then make a decision. The sentiment for this crippled DD is the same as above. I’m filled with mixed-feelings with this one. Be optimistic, Gary! At least you haven’t lost any money with this trade!
Next, the DIA DD initiated on 8 Mar. We bought May 128 Call and May 116 Put and sold Apr 126 Call and Apr 118 Put for $0.10 debit when DIA was trading at 122.63. Finally, a decent trade! We’ll most probably be able to roll this into a May iron condor for a decent credit. The current Apr/May roll (that is, to buy back our short Apr 126 Call and 118 Put and sell May 126 Call and May 118 Put) is valued at $1.25 credit. The short Apr 126 Call us currently trading at $0.40 while the short Apr 118 Put is trading at $0.50. We’ll wait for a few more days for these short options to decrease in value before buying them back. We might just be able to squeeze out and $0.10 credit. Moreover, by delaying the roll, we can take our time to reassess the market. If we do the roll now, we’ll end up with a May iron condor with 49 days to May expiration. If the market suffers another massive move, up or down, we can’t really do much with a condor. However, if we haven’t roll into an iron condor, we can choose to close the entire trade and release our funds to look for other better opportunities. So, in short, we wait, for a while more.
The RUT IC initiated on 13 Mar. We sold Apr 840 Call, bought Apr 850 Call, sold Apr 730 Put and bought Apr 720 Put for $1.95 credit when RUT was trading at 789.57. RUT is currently trading at 792.01. This is a good condor! Now if only every condor looks like this isn’t it? This condor is currently worth $1.15. This represents a profit of $0.80 per trade. At 792.01, it is about 48 points away from our short Call of 840 and about 62 points away from our short 730 Put. Our alert points were set at 810 on the upside and 760 on the downside. So everything looks calm and steady now. Our fences are not violated, we can relax a little and wait for time to decay away.
The IWM IC initiated on 15 Mar. We sold Apr 80 Call, bought Apr 82 Call, sold Apr 75 Put and sold Apr 73 Put for $0.95 credit when IWM was trading at 77.67. This condor went ITM for a while when the overall market rallied last week. Because this condor is has a risk/reward of nearly 1:1, we can afford to wait out for the ups and downs to settle down. Specifically, we are risking only $105 to make $95 per trade. Currently, with IWM trading at 78.58, this condor is valued at $0.90. Again, we’ll wait this condor out a little. Chances are good that we can make good profit with this one. But then again, we won’t know until we close it.
Lastly, the SPY IC initiated on 22 Mar. We sold Apr 145 Call, bought Apr 147 Call, sold Apr 139 Put and bought Apr 137 Put for $0.90 when SPY was trading at 143.42. SPY is currently at 141.26. This condor is currently valued at $0.75. This is a decent looking condor. We believe we can have good profit with this condor too.
Alright, here you go. To keep everyone in the mailing list in the loop lest you really think that we’re skiving. As usual, we’re currently stalking a few potential trades for May and May/Jun. I’ll keep you posted.
Hi Rapheal,
We scan the market everyday during market hours. Market neutral trades are not for day-trading and thus there is no need to scan the market everyday. However, we do that here at MarketNeutralOptions because we don’t want to miss anything.
We trade mainly SPY, DIA and IWM for double diagonals because of liquidity. It is useful to use a liquid underlying for a double diagonal because it is not a buy-to-open, sell-to-close strategy. There is a roll in between and using illiquid underlying may be frustrating when you need to roll but simply cant get filled.
Commission wise. You are right in observing that commissions for a double diagonal can be rather heavy. That is why it is very important that you use a good broker. MarketNeutralOptions has an exclusive deal for our subscribers with thinkorswim accounts. The commission for each option contract is only $1.50 with no minimum, etc. The risk/reward of a double diagonal is well worth the commission cost because a good double diagonal can generally collect more premium than the same iron condor. Of course the holding period is longer than an iron condor but a double diagonal offers the ability to get out before the roll should the market make a massive move in either direction.
Yes, you can use any underlyings you like for a double diagonal. I know people who are successful in double diagonals using stock options as well. However, you do want to use it on very liquid underlyings.
Finding a viable trade is more of an art than a science. I can’t really tell you how to find a profitable trade because the market is different everyday. What I can tell you is perhaps a rough guide as to when a good trade can be found. For iron condors, we normally start stalking potential ones as early as 40-45 days from expiration. But we usually enter when it is 25-40 days from expiration depending on market conditions, i.e., IV, market moves, etc. For double diagonal, it all boils down to the premium we get or pay. We’ll try to enter a double diagonal for even money ($0.00). But that is not always possible, so sometimes we may have a small credit or debit ($0.00-$0.20) we try to avoid having to pay more than $0.25 for a double diagonal because we will be holding it for a longer period of time.
Gary