MarketNeutralOptions.com

16 Aug 2007

IWM (iShares Trust Russell 2000) Vertical Spread initiated on 23 Jul 2007

Trade Summary

Buy back Put Spread
Buy IWM Aug 74 Put
Sell IWM Aug 72 Put

For a net price of $0.75 debit or better.
Profit or Loss: +$41 per position.

Trade Analysis

This was supposed to be the best trade for this month. Imagine the shock I was in when I saw our short put of 74 was ITM! It almost seemed like this iron condor was bullet proof, fool proof. The price now proves that we are the fool! We just got whip-sawed. We paid $0.75 to close our put spread. We could have done it now at $0.35. IWM is now, as I’m typing, positive for the day! It went as low as 73.24 earlier and we thought we better rescue this trade before it turns into a loser like every other trades.

Anyway, the milk is spilled and the glass broken. No point crying over anything now boy. The good news is we have some profit! $41 per position. Since we were risking $84 per position, our percentage return for this trade would work out to be [41/84 X 100% = 48.8%]. The bad news is, it could have been more!

This market is crazy. We are suppose to be income trader, not day trader. We used to be not bothered about intra-day swings. But now, the intra-day swing is so large that to enter a trade 30 minutes earlier or later will make so much a difference. This condor was actually a phoenix! It actually raised from the ashes and became alive again! But guess what? We swept the ashes away. Argh!

Since many of us suffer overall losses for this month, we have decided to not charge you guys the full $48.80 for this advisory. We have decided to charge only $30.00 for this advisory. Remember, we want you to profit to together with us not profit at your expense.

We’ll trade lightly for the next month until the market finds a footing. We will constantly look out for good trades and keep you informed. There hasn’t been any double diagonals lately because double diagonals have a longer life span. Look at what can happen in 27 days. How dare we guess what could possibly happen in 60 to 80 days?

Best regards,

Gary

***********Trade History**********

26 Jul 2007

Adjustment to IWM (iShares Trust Russell 2000) Vertical Spread initiated on 23 Jul 2007

Adjustment Summary

For a net price of $0.34 Credit or better. (thinkorswim auto-trade participants were filled at $0.30.)*

Roll Down Call Spread
Sell IWM Aug 87 Call
Buy 2X IWM Aug 85 Call
Sell IWM Aug 83 Call
(Enter as a butterfly trade, do NOT leg-in)

Take note of the number of options you have entered when you initiated this trade on 23 Jul and buy and sell according to proportion. For example, if you have enter 1 position for this trade on 23 Jul (you will have 1 short Aug 85 Call and 1 long Aug 87 Call), you should be buying 2 Aug 85 Call, selling your 1 long Aug 87 Call and selling another 1 Aug 83 Call. In essence, we are buying back our original call spread of short Aug 85 Call and long Aug 87 and selling another call spread of short Aug 83 Call and long Aug 85 Call.

For a net price of $0.17 Credit or better. (thinkorswim auto-trade participants were filled at $0.18.)*

Trade Analysis

This series of adjustment is aggressive in nature. What we are really doing here is to collect as much premium as possible and still be safe within a certain reasonable boundary. By collecting more premium for this position, we are essentially reducing our overall risk.

By adding the put spread, we are really making full use of our margin. We will have a full iron condor by adding the put spread. At the same time, because we are collecting premium for this put spread, we are reducing our risk by $0.34 per position. After adding this put spread to complete the iron condor, we will be short Aug 85 call, long Aug 87 call, short Aug 74 put and long Aug 72 put for a total of $0.99 credit. After this adjustment, we have a 1:1 risk/reward ratio for this iron condor. We are risking $101 to make $99 for every position we have.

Just when you thought this is cool, we realised we can make the entire position even better by rolling down our call spread to collect even more premium. We were originally short Aug 85 call and long Aug 87 call. This Aug 85/87 call spread was worth about $0.13 when I last checked. By rolling down our call spread, we are adding another $0.17 credit to this entire position. To be specific, we are buying back our Aug 85/87 call spread and selling another call spread at the same time. The one we’re selling is short Aug 83 call and long Aug 85 call. The best way to enter this adjustment is to enter it as a butterfly trade as described above.

After this series of adjustment we are now short Aug 83 call, long Aug 85 call, short Aug 74 put and long Aug 72 put for a total of $1.16 credit. Our breakeven points for this improvised iron condor is now at 84.16 on the upside and 72.84 on the downside. The probability of success stands at 69.88%. This is more than 1 standard deviation of 68%. Furthermore, we are risking only $84 to make $116 per position. This risk/reward ratio is more than 1:1! This must be one of the best iron condors we ever had in a while!

At the current price of around 78, IWM has a range of about 11 points to wiggle around. In fact, IWM can leap and fall all it wants and we can still be pretty safe. In fact, we can close this entire trade now for about $0.62 debit and lock in our profit if we want to. But looking at the wide range and high probability of even more profit, I think we should hold on to this a little longer. We will continue to monitor this position (actually this position does not really need much monitoring!) and inform you when we should close out.

Good trading,

Gary

* Please recalculate the breakeven points and total credit received for this entire position yourself if your filled price is different from the indicated price. Prices move very quickly. We can’t guarantee that auto-trade participants will all be filled at the indicated price. However, all efforts are made to ensure the price difference will be minimal.

***********Trade History***********

23 Jul 2007

IWM (iShares Trust Russell 2000) Vertical Spread initiated on 23 Jul 2007

Trade Summary

For a net price of $0.65 Credit or better.
Total margin required: $135.

Trade Analysis

This vertical call spread is our first in a rather long time. We are initiating this vertical call spread to take advantage of the relative weakness we see in IWM. This is a bearish position. We believe we have strong resistance at the 85 level area. It is currently about 2 IWM points away from the 85 resistance. That translates to about 20 RUT points.

Our breakeven point for this trade is 85.65. We have no downside risk (this is a bearish position). As long as IWM trades below 85.65 for the next 24 days, we should have a winning position. When we initiated this position, we have a probability of about 66.77% of profit. We’ll either adjust or close up this entire trade when IWM hits passes 85. However, the exact course of action we’ll take then depends on the market conditions at that moment.

The reason why we did not initiate this trade as an iron condor was because we felt that the premium we will get from the put spread was not attractive enough. We do believe that the 81 level area provides good support and thus, we may put in a put spread to complete this iron condor in a few days’ time if the premium is enticing enough for us to spend more on commission. We’ll see and we’ll keep in touch.

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com

Past Trades