IWM (iShares Trust Russell 2000 ETF) Iron Condor initiated on 16 Apr 2008
12 May 2008
IWM (iShares Trust Russell 2000 ETF) Iron Condor initiated on 16 Apr 2008
Trade Summary
IWM at 72.8 (+1.3)
4 days to May expiration.
Buy IWM May 73 Call
Sell IWM May 75 Call
Buy IWM May 68 Put
Sell IWM May 66 Put
For a net price of $0.64 Debit or better. [all tos auto-trade participants were filled at $0.64]
Profit or Loss: +$35 per position.
Trade Analysis
We could have closed this trade last Friday for an additional $0.10-$0.20 profit. I decided to close this now to lock in whatever profit we have at this point. Who knows where the market will go next and we are a mere $0.20 from our short call of 73. I believe it is wise for us to end this trade now and move on before this trade loses more of its profits.
We entered this trade for a $99 credit per position. We are buying back this trade for $0.64 debit. We made $35 per position. This trade makes 34.65% [35/101 X 100%]. As such, this trade will cost our regular subscribers $34.65 for May.
All we are left with for April’s expiration are only the unclosed put spreads from the 15 Apr RUT iron condors and 17 Apr SPX iron condors. More specifically, we should have equal number of short RUT May 630 puts and long RUT May 620 puts from the 15 Apr RUT iron condors and equal number of short SPX May 1280 puts and long SPX May 1270 puts from the 17 Apr SPX iron condor.
Please check that you have the unclosed options I pointed out.
Good trading,
Gary
***************************Trade History*****************************
16 Apr 2008
IWM (iShares Trust Russell 2000 ETF) Iron Condor initiated on 16 Apr 2008
Trade Summary
IWM at 70.61 (+1.6)
30 days to May expiration.
Sell IWM May 73 Call
Buy IWM May 75 Call
Sell IWM May 68 Put
Buy IWM May 66 Put
For a net price of $0.99 Credit or better.
Total margin required: $101 per position.
Trade Analysis
This is our first low risk/reward ratio (R3) trade for May. We are risking $101 to make $99 for each entry we put in. This gives us a R3 reading of 1.02, which means that our risk and reward are on par. As the P&L chart below shows, this trade has a probability of about 50% to be successful.
Our breakeven points for this trade is 73.99 on the upside and 67.01 on the downside. This nearly 7 IWM points wide profitable range is similar to 70 points on the RUT. As long as the RUT trades within these 70 points in the next 30 days, we can easily have a winner.
To be honest with you, I’m not very keen to initiate a low probability iron condor such as this one in the current uncertain market conditions even though the R3 is very attractive. However, a look at the daily chart of IWM made me believe that this trade might just have a good chance of being successful.
Looking at the daily chart of IWM, the immediate resistance level of 72 and the immediate support level at 68. We can also see how IWM had traded between the two levels for the past weeks.
Because we are risking almost $1 for $1, we can adopt a more flexible risk management strategy. Because our R3 is low, we have a lower probability of success (around 50%), we also have a narrower profitable range. As such, we want to be careful of being stopped out prematurely. In such cases, I’ll not use a mental stop or alarm to manage this trade. I’ll instead look at the price. Since we’re in this for $0.99 per trade, we should be ready to get out when the price of this trade reaches $1.20 or more. Commission costs are generally higher for these low R3 iron condor due to the large number of orders one may put in. Therefore, we really don’t want to be facing the maximum loss.
Since the market outlook is nothing but volatile, we may choose to terminate this trade earlier to lock in any decent profits that we have collected.
We will keep a close look at this trade and inform you according when there is a need to do anything.
Good trading,
Gary
Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com
