MarketNeutralOptions.com

RUT (Russell 2000 Index) Iron Condor initiated on 26 Mar 2008

Trade Summary

For a net price of $0.20 Debit or better.
Profit or Loss: +$210 per entry.

Trade Analysis

When we entered this trade about 19 days ago, RUT was trading at 697.28. Today, 19 days later, RUT was trading at 693.67. This is a good example of how an iron condor should work. Even though the month of April will be officially over only on this Friday, we can more or less start calculating our results for April.

I don’t know about you, but I’m personally quite please with April’s results. Even though we have 2 losers and 2 winners, our losses are small. One of the wins can easily more than cover the two losses.

This trade made $210 per entry. That is a 27.27% profit [210/770 X 100%]. Therefore, this advisory will cost you a mere $27.27 for the month of April.

We are currently in the queue for more trades in May. We’ll be in touch once we are filled at our target price.

Good trading,

Gary

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

26 Mar 2008

RUT (Russell 2000 Index) Iron Condor initiated on 26 Mar 2008

Trade Summary

For a net price of $2.30 Credit or better. [tos auto-trade participants were filled at $2.32]
Total margin required: $780 per entry.

Trade Analysis

Needless for me to say, the market is very unpredictable at the moment. This market is not for the faint-hearted. This is our forth trade for April. It is also most probably the last for April. I had a hard time deciding whether or not to put up this trade because of the wild market movements. In a jittery and uncertain market like this one should really trade lightly and keep a closer look at the existing positions. However, a deep analysis shows that this trade is in fact a better trade than some of the existing ones we have.

For this iron condor, we are risking $780 to make $230 per entry. That gives a a risk/reward ratio (R3) of 3.39 [780/230]. This R3 is slightly better than the last SPX iron condor we put up on 19 Mar. The probability of success is about 71%, which is slightly more that the usual 1 standard deviation (68%) that we aim for usually.

The break even points for this condor is 752.3 on the upside and 637.7 on the downside. It currently has a near zero delta of -0.94. As long as RUT trades within these 115 points for the next 22 days, this condor is a winner!

The recent wild swings made technical analysis rather irrelevant. However, we still use them as a guide for us to trace the possible terrain that RUT can possibly go to in the near future. We can see clearly from the daily chart that there seems to be a possible resistance area near the 720 level. We can also see that the 100-day MA (yellow line) is fast approaching the same resistance level. Note that the RUT crossed the 20 and 50-day MA in 1 single move on Monday. Will it do the same with the 100-day MA?

The basic in technical analysis says that once a resistance level is breached, it automatically becomes a support. With that concept in mind, we can see that the 20 and 50-day MA will now act as support levels as well as the prior highs of 680. Do note that in such highly volatile market, all it takes is just one long candle to mess up the charts and analysis. However, by going through the chart, we can have a clearer idea of where to look out for signs of trouble.

Because this iron condor has a R3 of 3.39, we should be pro-active in managing this position. Since we are short 750 call and 640 put, we should set our alarm at 720 and 670, which are 30 points away from our short strikes. 30 points is roughly about 5% of current price. When RUT trades near or pass these alarms, we should be ready to adjust or close this trade. It is hard to tell which side the market to go at this moment. We are generally bearish on the medium to long term. But our trading philosophy is to stay neutral in the short term.

Do note that the call spread of this iron condor trade will cancel out the call spread of another RUT iron condor that we initiated on 7 Mar. For the iron condor initiated on 7 Mar, we were short Apr 740 call and long Apr 750 call. For this iron condor, we are short Apr 750 call and long Apr 760 call. If you have entered the same number of position for each of these condors, you will find that you no longer have any more Apr 750 call positions. Do not be alarmed. The best way to deal with this is to see each trade individually. Maintain a trade journal to record each trade you put in will help.

Hopefully we don’t have to adjust anything for our Apr positions.

We’ll be in touch!

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com