MarketNeutralOptions.com

16 Nov 2007

IWM (iShares Trust Russell 2000) Vertical Spread initiated on 10 Oct 2007

Trade Summary

Profit or Loss: -$20 per position.

Trade Analysis

Do nothing and let remaining call options expire worthless at the end of the day. Our decision to buy back our put spread on 7 Nov (see below) and lock in a small loss of $20 per position. We could have lossed more if we didn’t do what we did to adjust. While this trade turned out to be a disappointment, we are glad that we suffer a small loss.

There will be no charge for this IWM iron condor advisory since it’s a loser.

Have a great weekend!
Gary

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

7 Nov 2007

IWM (iShares Trust Russell 2000) Vertical Spread initiated on 10 Oct 2007

Trade Summary

For a net price of $1.10 Debit or better.
Profit or Loss: -$20 per position.

Trade Analysis

With only 8 days to expiration and both put options ITM, risk is getting higher by the day that this condor will be a bigger loser than now. We collected a total of $0.90 credit for this iron condor and now we are buying it back at $1.10. We lose $0.20 per position.

As we approach Nov expiration, the price of this spread will increase as long as IWM stays under 81. Looking at the chart below, chances are low that IWM will trade above 81 any time soon. Furthermore, our breakeven for the downside is 80.1, looking at the chart again, we can see that IWM tested the 80 level twice during the past 3 trading sessions. The more a particular price acts as a resistance or support the better the resistance or support. As such, we feel that chances are not good that we can trade above 80 any time soon.

We will most probably leave the call spread alone and let it expire worthless next Friday to save on commissions. You can choose to close it and free up the margin for other trades.

We still have another IWM iron condor initiated on 23 Oct. We are keeping a close eye on that position and will inform you timely when we need to do something.

Good trading,

Gary

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

12 Oct 2007

IWM (iShares Trust Russell 2000) Vertical Spread initiated on 10 Oct 2007

Trade Summary

For a net price of $0.50 Credit or better.
Total margin required: $110 per position.

Trade Analysis

What a difference two days made! After yesterday’s sell down we are more confident with the resistance level at 85. What made yesterday’s sell down more vicious was the corresponding increase in trading volume. This shows that institutional players such as the hedge funds and mutual funds are selling into strength.

By adding this call spread we now have a complete iron condor for this entire position. We entered the put side on 10 Oct for $0.40 credit and we enter the call side for $0.50 credit. We thus have this condor for a net $0.90 credit. This is a nearly 1:1 risk/reward iron condor. We are risking $110 to make $90 for each position we put up.

This iron condor has new breakeven points. Our upside breakeven is now at 87.9 while our downside breakeven is at 80.1. This is a nearly 8 IWM point-wide iron condor. By adding this call spread to complete the iron condor, we have effectively reduced our total risk from $160 per position to $110 per position.

We believe premiums will erode away quickly now that there are only 34 days left to expiration. We expect the market to be volatile in the coming weeks due to earnings reports and therefore we should not close our position when the market is running on emotions. We don’t want to be caught in a whipsaw.

However, we should be ready to close up or roll up our position when this condor is worth more than $1.20, which will result in about 30% loss. Due to the volatile market, we may not be able to find good trade set up for Nov taking into consideration that there are only 34 days left to Nov expiration.

We have a FOMC meeting between now and Nov expiration. How the market will react to the meeting is anybody’s guess. Hopefully, by then we’ll be able to close and lock in some profit so that we can avoid the market turbulence that so often follows a FOMC meeting.

We’ll be keeping a close eye on this condor and inform you accordingly to any more necessary adjustments.

Good trading,

Gary

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

10 Oct 2007

IWM (iShares Trust Russell 2000) Vertical Spread initiated on 10 Oct 2007

Trade Summary

For a net price of $0.40 Credit or better.
Total margin required: $160 per position.

Trade Analysis

Once in a while we do put up some directional trades. The market takes a dive today after Boeing announced that delivery for its Dreamliner will be delayed. This news dragged the Dow down by more than 100 points. Again, we hear both sides of the market presenting their case. The bulls say today is a mere correction that we have seen once in a while. The bears say today is the beginning of the end of the bull run.

Normally we don’t really care who is more right than the other. But feeling the uncertainty in the market, we feel that we ought to be careful initiating new trades that will last through the next FOMC meeting.

This vertical put spread is half the iron condor we have in mind. However, this time we decided to leg in out spreads to widen our margin of error. We do see a resistance but we are not very confident with it after seeing how the market sliced through resistance and support so rapidly in recent times. We may or may not add in the call spread eventually. It all depends on the market condition at that point in time.

But based on what we can see today, we believe this vertical has a relatively good chance of being profitable.

This vertical put spread has a breakeven of 80.6 on the downside. At current level, we are about 3.5 points away from our breakeven. Looking at the P/L chart below, we can see that this position has a probability of success of nearly 70%.

We do see some support at the 83 and 81.5 levels. (See IWM daily below) We do want to watch out for IWM to test its resistance at 85. The IWM is close to its recent highs of 85. This was the reason why we decided to do a vertical rather than an iron condor for better yield. If IWM manages to breach the 85 mark with strength in the coming days, it wouldn’t make sense for us to add in a call spread to complete the iron condor. What we had in mind earlier was to sell a 87/89 call spread to make this trade an iron condor. We may still end up selling the same call spread eventually, but we think it’ll be prudent to wait and see for a while more.

Alright, this is not a 1:1 risk/reward trade and therefore we have to set out some defences to this trade. We should be ready to close up or roll this trade when IWM breaches the 81 level or when this spread cost more than $0.45. In times of uncertainty in the market, it pays to stay alert and ready to take flight away from danger. We’ll see how the market moves and update you accordingly then.

Till then, good trading,

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com

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