The Week Ahead
22 Oct 2007
The Week Ahead
Uncertainty seems to be the buzz word of late. One week we were seeing indices hitting new highs day after day and the next, we saw the third worst plunge for the year. If you haven’t heard about last Friday’s market plunge, you must be living in a cave! Some attributed the plunge to the 20th anniversary of the 1987 Black Monday while others blamed it on the reports that came with the earnings of 3M and Caterpillar.
Let’s try to look at what we can expect for the coming week. More companies will be releasing their earnings report this week starting with Apple (AAPL) today. You can find the list of companies reporting their earnings at briefing.com. All in all, we feel that the bears will have a better hand this week than the bulls. Although the bulls attempt a comeback today, we believe that the bulls can be easily defeated by the bears. This is because we saw a couple of distribution days last week with the biggest of them on Friday. Volume rose dramatically on Friday as the market took the plunge. We expected volume to increase significantly because it was options expiration Friday but given the magnitude of the sell-off, it was rather clear that major institutional players were behind the slew of selling. Unless today’s rally is substantiated by high volume, this rally will not be credible.
There will be a FOMC meeting on Halloween next week. If the Fed decides to cut rates again, we expect the market to rocket up again. However, if the market expectation of a rate cut is not fulfilled, we expect to see a repeat of last Friday’s action. How it will turn out? We can only guess and try to shield our positions to a reasonable extent from any possible outcome. In view of so much uncertainty and jittery in the market, we shall maintain our trade-lightly mode.
Of course the sudden change in market sentiment will affect some of our open positions to some extent. Let’s take a look at our open positions.
Position Update
RUT iron condor initiated on 8 Oct
Short Nov 900 Call
Long Nov 910 Call
Short Nov 780 Put
Long Nov 770 Put
For $2.20 credit.
Our alarm sounded last Friday when RUT breached the 810 mark. Since we are risking more than we can make out of this position, we have to be nimble to make necessary adjustments. In fact, we are queuing for a roll now. We will be sending the advisory out soon to all our subscribers once we got filled at the target price.
IWM iron condor initiated on 10 Oct
Short Nov 87 Call
Long Nov 89 Call
Short Nov 81 Put
Long Nov 79 Put
For a total of $0.90 credit.
Our short 81 put is currently ITM after last Friday’s move. Because we have better risk/reward ratio for this iron condor, we can be slightly more patient and get out only when the pain is unbearable. Remember the last iron condor we close up too soon for October? (see last entry). So for this position, we will wait for a while longer to see what the market does.
SPY iron condor initiated on 17 Oct
Short Nov 157 Call
Long Nov 159 Call
Short Nov 148 Put
Long Nov 146 Put
For $0.98 credit.
This is another 1:1 risk reward iron condor. Currently, it is looking good. There is no need to do any adjustments as of now. Things may change quickly and the high credit that we collected will help to offer us some leeway.
Good trading,
Gary
