The Week Ahead
1 October 2007
The Week Ahead
You should have heard by now that the Dow is trading at all-new high this afternoon. The Dow advances more than 150 points. But whether the major indices will close at these highs is still an unknown until about 3 hours later.
The immediate market sentiment is bullish, but cautiously so. We remain cautious with our positions and will trade lightly until the current uncertainty settles down. There will be another round of FOMC meeting this month. Whether the Fed is going to cut interest rates further is anyone’s guess at the moment. We expect the bullish sentiment to continue into this week if there isn’t bad news to pull the market down.
Position Updates
We currently have two open positions for October. Let’s take a look at how these positions are faring.
RUT Iron Condor initiated on 13 Sep.
Sell Oct 860 Call
Buy Oct 870 Call
Sell Oct 700 Put
Buy Oct 690 Put
For $2.30 credit.
This position is currently trading at $1.15. If we close this position now we reap a profit of $1.15 per position, which is about 14.94% profit. This iron condor is currently looking pretty good. We are watching the 830 level. RUT is currently trading at 823.55. There is a good chance of RUT hitting 830 level in the coming days if the relentless bulls keep on with their advances.
When the RUT hits 830, we will either close up the call spread of roll up the spread. Which course of action we will take depends very much on the market condition at that moment. RUT is one of the slowest moving indices around because it represents a whopping 2000 listed companies. We don’t see the RUT moving up or down 30 points in a day. That means we have some time to decide and execute our adjustments should the need arises.
IWM Iron Condor initiated on 11 Sep.
Sell Oct 82 Call
Buy Oct 84 Call
Sell Oct 72 Put
Buy Oct 70 Put
For $0.95 credit.
This position is currently trading at $0.95. If we close it now, we’ll lose just the commissions. We tried to close up the call spread by buying back our short 82 Calls and selling our long 84 Calls last Friday when the market took a dip. We were trying to buy back the spread for $0.65 on Friday but were unsuccessful. The reason we decided to close up the call spread on Friday was due to the bullish sentiment we’re seeing in the market in general. We felt that $0.65 is a nice price to pay to lock on a decent amount of profit at the point.
But we couldn’t get it filled then. Lo and behold, the market jumped today and the same spread now cost about $0.93.
Ok, now this position is causing us some pain at the moment because today’s rally erases all the time decay that we’ve collected over the days. We are watching this position very closely. However, remember that our breakeven point for this trade is 82.95 on the upside. As long as IWM trades below 82.95 this position is a winner.
More importantly, this iron condor offers a 1:1 risk/reward ratio. We are risking $105 to make $95 per position. Of course, we’ll try not to lose a cent, let alone $105! So this is what we plan to do:
We should be prepared to make an adjustment when IWM trades pass 82.50. Again, we will either roll up the call spread or close up the call spread. What we will do depends on the momentum of the movement. If there is strong indication that IWM will continue higher, we’ll simply close up the call spread and take in some small loss. If there is indication that IWM is over stretched, we may elect to roll up to keep the condor alive. A lot depends on the number of days to expiration of course.
Coming up
We are currently queuing for a last trade for October using the IWM and the SPY. We are hoping to set up a neutral iron condor for October expiration. With only 17 days to expiration, we ‘re trying to find a nice condor that offers us a nice risk/reward. Regular subscribers will receive real-time alerts when the we get the positions we want at the price we want.
Until then,
Gary
MarketNeutralOptions.com
