The Week Ahead
29 Oct 2007
The Week Ahead
Seems like the market is quietly waiting for the Fed’s announcement on Wednesday. Barring any surprises we should know the decision of the Fed on Wednesday. Many analysts are expecting another cut in the interest rate. Expect wild swings in the market on Wednesday. The million dollar question would be: which direction? Up or down? If the Fed decides to cut rates again, the market will rally. But do watch out for the possibility of the Fed not cutting the rates. If it happens this time, the market is going to crash big time. The expectation of the cut is so high that if the cut does not happen, it’s going to be a major upset to many. Many traders who are expecting a cut are long in the market. If there is not cut, the market will be pulled down not just by the bears but the crash will be made worse by the bulls covering their long positions.
In view of such uncertainty, we are going to halt adding new positions for the month of November. We currently have four open positions and we shall take a look at their current status.
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 per position.
On 23 Oct, when RUT was trading near 810, we initiated a roll to our put spread in accordance to our trading rules.
We bought back the put spread and sold another (short 750 put, long 740 put) for a net $1.00 debit.
We are now Short Nov 900 call, Long Nov 910 call, Short 750 put and long 740 put for a net $1.20 credit per position.
This entire position is currently trading at $0.95. We decided to delay rolling down our call spread to collect more premiums due to the uncertainty surrounding the Fed announcement. RUT is currently trading at 821.51, which is about 80 points away from our short call of 900 and about 70 points away from our short out of 750. I reckon that this position should be rather safe from any major swings, up or down. There is currently about 88.97% chance that this trade is a winner.
We will leave the position alone at the moment. We’ll reassess the position after the Fed to determine if we should roll down our call spread for more credits.
IWM iron condor initiated on 10 Oct
Short Nov 87 call
Long Nov 89 call
Short Nov 81 put
Long Nov 79 put
For $0.90 credit per position.
This iron condor is currently trading at $0.74. Our breakeven points for this position are at 87.9 on the upside and 80.1 on the downside. With the IWM currently at 81.99, we are about 1.9 points away from our downside breakeven and 5.9 points away from our upside breakeven.
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 per position.
This position is currently trading at $0.94. Our breakeven points for this position are at 159.98 on the upside and 147.02 on the downside. SPY is currently trading at 154.16, which is about 5.8 points away from our upside breakeven and about 7.1 points away from our downside breakeven. We are currently comfortable with this position. We will avoid adjusting this position as much as possible.
IWM iron condor initiated on 23 Oct
Short Nov 84 call
Long Nov 86 call
Short Nov 78 put
Long Nov 76 put
For $0.91 credit per position.
This position is currently trading at $0.90. Not much decay yet. This is mainly due to the rise in implied volatility (IV) level. We expect the IV level to cease somewhat after the Fed. However, if there were to be no rate cut, IV level should rise higher as the market crash. Our upside breakeven is 84.9, which is about 3 points away from the current price, and our downside breakeven is 77.09, which is about 5 points away.
We will keep an eye on these positions and recommend any adjustment when the time comes. Our subscribers will receive any advisory alert real-time via emails.
Until then, good trading,
Gary
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