MarketNeutralOptions.com

SPX (S&P 500 Index) Iron Condor initiated on 19 Mar 2008

Trade Summary

For a net price of $0.45 Debit or better.
Profit or loss: +$175 per entry.

Trade Analysis

We decided to close up this iron condor a little earlier than usual for a few reasons. First being the current uncertainty in the market. Get out now and lock in the profit sounds very appealing at the moment. Even though we normally try to close our condors at around $0.20-0.30 debit, we are happy to get it back at $0.45 with a faster fill. Lastly, we want to free up our funds for new trades in May.

The profit we made from this trade is more than enough to cover the small losses we suffered from 2 other trades which we adjusted earlier (we lost $15 per entry on the RUT IC initiated on 7 Mar and $30 per entry on the SPY IC initiated on 11 Mar). This iron condor made $175 per entry, that is a 22.44% profit [175/770 X100%]. Therefore, this trade will cost $22.44 for you April’s bill.

We are on the lookout for good trades for May and will be in touch when we can get it.

Good trading,

Gary

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

19 Mar 2008

SPX (S&P 500 Index) Iron Condor initiated on 19 Mar 2008

Trade Summary

For a net price of $2.20 Credit or better. (all tos auto-trade participants were filled at $2.20 credit)
Total margin required: $780 per entry.

Trade Analysis

This is our first SPX trade in quite a while. This is because we always can’t get fill a SPX trade! Despite we are only 29 days away from April expiration, we can still get a pretty decent credit for this iron condor due to the heightened IV.

This iron condor has a very neutral delta of -0.77 at the moment. The breakeven points for this iron condor will be 1422.2 on the upside and 1197.8 on the downside. This gives us effectively a profitable range of about 224 SPX points. As long as SPX trades between these 224 points for the next 29 days, we will have a profitable trade. The probability of success currently stands at 70.46%, which is slightly higher than the usual 1 standard deviation that we often use. In this volatile market, it’ll be useful to extend our probability of success by as much as possible.

The risk/reward ratio(R3) of this trade is 3.55 [780/220]. More specifically, we are really risking $780 to make $220 for every position we put up. Since R3 is more than 2, this trade is one that requires more pro-active risk management style. Because we are risking alot more than what we can make potentially, we must ensure that we’ll not suffer the maximum possible loss for this trade.

As such, it will be useful for us to set up alarms so that we know when we have to make adjustments. At the current price of 1319, a 5% move will be about 65 points. Since our short strikes are at 1420 and 1200, a 65 points-wide distance away from them will be 1355 [1420-65] and 1265 [1200+65]. We should keep a lookout when SPX trades pass these two levels. Normally, it will be sufficient to use a distance of 3 to 4%, however, given the current market conditions, it would be wiser to widen the buffer zone so that we can have more time and space to decide on what adjustments to make at that point. Whether we will close up the bleeding wing, or roll depends on the market conditions at that moment.

I will let you know the moment there is a need to adjust. No news from me usually means good news!

Good trading,

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com