RUT Iron Condor initiated on 19 Feb
19 Mar 2008
RUT (Russell 2000 Index) Iron Condor initiated on 19 Feb 2008
Trade Summary
RUT at 677.95 (-3.98)
1 day to Mar expiration.
Do Nothing, let call spread expire worthless.
Your remaining options:
Sell RUT Mar 770 Call
Buy RUT Mar 780 Call
Profit or Loss: $0.
Trade Analysis
Needless for me to say, you should have noticed how volatile this market has become lately. This week will be a shortened trading week due to Good Friday public holiday. As such, all options will expire on Thursday (20 Mar) rather than on Friday. Similarly, the RUT options will expire today (19 Mar), which is one day earlier than the normal Friday.
This iron condor didn’t work out too well. But at least we don’t have a big loss. We don’t normally leave our RUT options to expire worthless due to the increased risk. However, this time around, I believe we can simply leave the call spread to expire worthless since our short strike of 770.
Since this trade recommendation did not make any money, there will be no charge for this trade in March.
Good trading,
Gary
******************************* Trade History***************************
7 Mar 2008
RUT (Russell 2000 Index) Iron Condor initiated on 19 Feb 2008
Trade Summary
RUT at 663.83 (+1.09)
13 days to Mar expiration.
Buy RUT Mar 640 Put
Sell RUT Mar 630 Put
For a net price of $2.20 Debit or better.
Trade Analysis
Although we had a 74% chance of being profitable on this trade when we put it up, we decided to take our money off the table at this point. We sold this iron condor for $2.20 on 19 Feb and we are buying the put spread back at $2.20 today. We broke even on this trade. We lost only the commissions.
Some of you may wish to buy back the call spread to free up the margin and be prepared for April’s trades. At this moment, the call spread is trading near 0. As such, it may be difficult to get it filled. If there is a need to close up the call spread, I’ll inform you, otherwise, you can leave it alone if you wish to save on the commissions.
We decided against rolling this put spread lower because the premiums wasn’t fantastic. We have another RUT iron condor for March which is doing pretty well still.
Although this trade didn’t make any money, we are glad that we didn’t lose any too.
Look out for April’s trades coming soon!
Good trading,
Gary
**************Trade History***********************
19 Feb 2008
RUT (Russell 2000 Index) Iron Condor initiated on 19 Feb 2008
Trade Summary
RUT at 705.79 (+4.33)
29 days to Mar expiration.
Sell RUT Mar 770 Call
Buy RUT Mar 780 Call
Sell RUT Mar 640 Put
Buy RUT Mar 630 Put
For a net price of $2.20 Credit or better.
Total margin required: $780 per entry.
Trade Analysis
This is our second RUT iron condor for March. I was trying for a SPX iron condor but the price isn’t as attractive as what the RUT can offer. This iron condor has a very neutral delta of -0.57 per position. Our breakeven points are 772.2 on the upside and 637.8 on the downside. The probability that this iron condor will be profitable currently stands at 74.01% (see P/L chart below). At this probability, we have a profitable range that is wider than the usual 1 standard deviation (68%).
On the technical front, the market is generally range bound at the moment. We can see an immediate resistance for the RUT at 730 level and an immediate support at 660 level. We can also see from the daily chart of RUT that the trading range is getting tighter and tighter (see the blue lines). Like a compressed spring, the tighter the compression, the more violent the recoil when the pressure is finally release. So we have to be prepared for a sudden and major move in either direction. It is hard to tell which way the market will go from here because it seems that the bulls and bears are equally matched at the moment.
Although on a fundamental note and on a medium and longer term perspective, we are slightly leaning towards the bear camp, we must be aware that news and rate cuts can fuel a sharp rally that can easily last for days to even weeks. Bear in mind that even in a bear market, which some of us believe that we are in currently, there can be prolonged rallies that can hurt our neutral positions.
Because we are risking $780 to making $220 for every position, this trade has a risk/reward ratio (R3) of 3.55, which is considered high. As such, we have to be proactive in managing this trade. Since we are short 770 call and 640 put, we shall set up our alarm at 740 and 670, which are 30 points away from our short strikes. A 30 points distance is more than 4% based on current price. This will provide us with sufficient time and space for us to decide our next course of action.
This will most probably be our last trade for March unless we can find another irresistible trade. In uncertain times, we should avoid over-trading. Because our positions are generally neutral, we can still get hurt if a single-directional move continues for too long. We will keep a close look at the positions we have and close whenever the time is right. We will be in touch.
Good trading.
Gary
Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com
