MarketNeutralOptions.com

RUT (Russell 2000 Index) Iron Condor initiated on 7 Mar 2008

Trade Summary

For a net price of $2.50-$2.60 Debit or better. [all tos auto-trade participants were filled at $2.60]

Trade Analysis

Alright folks, I understand that some of you may be feeling jittery under such unpredictable market condition. More write downs by big banks and Wall Street was celebrating? Who would have predicted that? Well, it is not our business to be predicting the market. If you are feeling sore about the market, don’t be surprised if you are not alone. Just last week, this position was still a profitable one. Now we are facing a potential loss. Potential loss because we may decide to sell another call spread or roll up our put spread to collect more premiums depending on the market actions.

The RUT tripped our alarm at 710. We wanted to wait our a bit longer for the price to stabilize before buying back the call spread. However, the RUT doesn’t seem to be coming down any time soon. Since this was a high risk/reward ratio (R3) trade, I don’t think it’s wise to wait for things to happen. We have to be pro-active in managing our risk. If we have to close now to suffer a small loss, so be it. It’s much better than holding on to the risk and letting it grow as the market goes against you.

With only 15 days to go, we can’t seem to find a suitable spread to roll our call spread. If we were to roll our call spread only slightly up, we may end up having to roll again should the market continues on the upside.On the other hand, if we choose a further call spread to roll into, we may not be able to get a nice price.

For now, we’ll just close up this bleeding wing.

Good trading,

Gary

*******************Trade History.****************************

7 Mar 2008

RUT (Russell 2000 Index) Iron Condor initiated on 7 Mar 2008

Trade Summary

For a net price of $2.40 Credit or better.
Total margin required: $760 per entry.

Trade Analysis

This RUT iron condor is our first trade for April. With a delta of -0.46, it is as good as flat. Our breakeven points for this iron condor is 742.40 on the upside and 587.60 on the downside with a probability of about 71.84%. That is a 154.8 points profit range. As long as the RUT trades within this range for the next 40 days, we will have a profitable iron condor.

Since we are risking $760 to make $240 for every position we put up, this iron condor has a risk/reward ratio (R3) of 3.17 [760/240]. Because we are risking a lot more than what we can potentially make, we need to keep a close look at the price change of this iron condor.

The RUT hit the low of 650 on 22 Jan 2008. This immediate support is going to be tested very soon, maybe even today. 650 is the lowest price RUT was ever traded in the past 1 year. Should the RUT closes below 650 today, it is highly likely that there is going to be a new lower low soon.

Since we are short 740 call and 590 put, we will place an alarm at the price level of 710 for the upside and 620 for the downside. This 30-point-wide buffer is about 5% of the RUT. It is unlikely that RUT will change to the tune of 5% in a single day. As such, this 30-point-buffer will offer us time and space to decide out course of action when the alarms are breached.

We’ll keep a close watch on this trade and inform you as soon as possible if there is a need to adjust this trade.

Will talk again soon.

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com