MarketNeutralOptions.com

RUT (Russell 2000 Index) Vertical Call Spread initiated on 6 Feb 2008

Trade Summary

RUT at 679.95 (+6.13)
8 days to Mar expiration.

Buy RUT Mar 770 Call
Sell RUT Mar 780 Call
Buy RUT Mar 610 Put
Sell RUT Mar 600 Put

For a net price of $0.15-$0.25 Debit or better.
Profit/Loss: +$258 per entry.

Trade Analysis

We legged in this iron condor on 6 Feb and 8 Feb (see below for trade history). We collected a total of $283 (per position) in credit with a total risk of $717 per position. As such, this trade made an impressive 35.98% [258/717 X 100%] returns. As per our plan, this position was trading near $0.20 since yesterday. But we only managed to get it filled today at $0.25.

This is the last active position we have for Mar. We are only left with a RUT 770/780 call spread, which was left behind by the RUT iron condor initiated on 19 Feb. We will try to find more such trades for April. Currently we have 2 active open positions for April. We’ll try to add one or two more.

Good trading,
Gary

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

8 Feb 2008

RUT (Russell 2000 Index) Vertical Call Spread initiated on 6 Feb 2008

Trade Summary

For a net price of $1.18 – $1.20 Credit or better. (tos auto-trade participants were filled at $1.18 to $1.20)
Total margin/risk: $722 per entry.

Trade Analysis

Two days ago, we initiated half of this iron condor with the call spread. Today, we’re adding in the put wing to complete the iron condor. This leg-in effort does help us get a little more premiums than we’ll otherwise get. I got filled for this put wing at $1.18 and got filled for the call wing at $1.65. Do I actually sold this iron condor for a total of $2.83 credit. This similar position is currently trading at $2.60-$2.65.

This iron condor is slightly leaning to the down side as you can tell from the delta. Although its delta is small, it is net negative 1.41 per position. The breakeven points for this condor is 612.83 [610+2.83] for the downside and 767.17 on the upside. We also have a probability of about 70.47% that this trade will turn up successful. As long as the RUT trades within this 150-point range for the next month, we should have a profitable condor with this.

The market in general in in a downtrend. But as we all know even in a down trending market, there will be sharp but short-live rallies. It is likely that volatility will remain high for a while. As such it’ll be important that we keep a close look at our positions for March.

This condor has a risk/reward ratio (R3) of 2.53. Because of the relatively high premiums we collected, this iron condor is slightly less risky than a regular RUT condor. Still, it is important that we have a plan to deal with this trade when things don’t work quite exactly the way we like.

Since we are short 610 and 770, we shall place our alarm at about 640 and 730 respectively. This will give us sufficient time to plan an adjustment. This 30 points buffer will help us buy some time when the need for an adjustment arises.

We are currently queuing for another iron condor on the SPX. But SPX has been proven to be more difficult to get filled than the RUT. We like this range-bound trading environment. But we have to be alert for any sudden strong rally or decline. We may trade less position for Mar until we can be certain that this range-bound or bearish actions is going to last for the next few weeks. At this moment, the picture looks blur and indecisive.

We’ll talk again soon!

Good trading,

Gary

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

6 Feb 2008

RUT (Russell 2000 Index) Vertical Call Spread initiated on 6 Feb 2008

Trade Summary

For a net price of $1.60-$1.70 Credit or better.* (price revised to $1.60)
Total margin required: $835 per entry.

Trade Analysis

With 42 days to March expiration, we are initiating our iron condor slightly earlier. Also, we are attempting to leg-in into this iron condor in the making. I don’t normally leg-in into an iron condor and don’t advise people to do so.

So let me explain on this change. First of all, this call spread is selling at a very attractive price of $1.65. We are currently in a downtrend and we believe that this call spread will lose its value very rapidly for the coming weeks. Second, we have time. We have the time to wait out a few sessions for the put spread to increase in value. I was looking at the 600/590 put spread. It was trading at $1.00, which I find too low. The RUT will likely to go lower (it’s doing so right now as I type) and this put spread can easily cost more as IV jumped.

If we can capture this put spread for $1.20, we’ll have an iron condor for a very nice price.

Since we are waiting to leg-in into an iron condor, it doesn’t make sense to talk about the delta and breakeven points at this moment. This vertical call spread is an outright bearish trade. We’ll see how the RUT behaves and then decide what to do. We may change the strikes for the put spread. We may eventually decide not to complete the iron condor. It all depends on what the market gives us.

We’ll be in touch very soon.

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com