MarketNeutralOptions.com

29 Apr 2008

RUT (Russell 2000 Index) Iron Condor initiated on 15 Apr 2008

Trade Summary

RUT at 718.83 (-6.49)
16 days to May expiration.

Buy RUT May 750 Call
Sell RUT May 760 Call

For a net price of $1.45 Debit or better. [all tos auto-trade participants were filled at $1.44.]

Trade Analysis

As you should know by now, the market is all priced in for the expected rate cut tomorrow and the expected statement that will come with it. We already know that much, even the wording of the statement are being rehearsed on various news website. The only biggest unknown is the market’s reaction to the “news”.

I was hoping we don’t have to make any adjustments but it seems that that will be too much a risk to take. We already know that there will be a big move tomorrow. The only problem is we don’t know which way.

The trouble with this iron condor is that the RUT is trading very near our mental stop of 720. In fact, it traded past 720 yesterday. There seems to be a strong resistance at 720-730 area. But there is a lack of selldown today despite hitting the resistance yesterday. In fact, market is showing some reluctance to go lower now. As such, I feel that there is a chance that RUT will continue higher after the Fed tomorrow.

I decided that to close up our call spread to lock in some profits at this moment is a wise thing to do. We don’t want to be overly expose to upside risk at this point.

I’ll inform you again if there is a need to do anymore adjustments for our remaining 3 positions.

Good trading,

Gary

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

15 Apr 2008

RUT (Russell 2000 Index) Iron Condor initiated on 15 Apr 2008

Trade Summary

RUT at 686.42 (+0.35)
30 days to May expiration.

Sell RUT May 750 Call
Buy RUT May 760 Call
Sell RUT May 630 Put
Buy RUT May 620 Put

For a net price of $2.25 Credit or better. [all tos auto-trade participants were filled at $2.25]
Total margin required: $775 per entry.

Trade Analysis

This is our second RUT iron condor for May. The first one was initiated on 8 April. We are risking $775 to make $225 per entry for this trade. This gives us a risk/reward ratio (R3) reading of 3.44 [775/225]. This iron condor has a very neutral delta of -0.12 at the moment. As you can see from the screenshot below, this trade has more than 70% chance of being successful.

Our breakeven points for this trade are at 752.25 on the upside and 627.75 on the downside. As long as the RUT trades between these 120 points for the next 30 days or so, this trade will be a winner. But of course being a high R3 iron condor, we have to be more pro-active in our risk management to ensure that we will not suffer the maximum loss. In fact we don’t even want to get close to it. Way before the RUT gets close enough to cause any serious damage to our account, we should have adjusted or gotten out of the losing trade.

We should set a mental stop at about 30 points (which is about 5%) away from our short strikes. Since we are short 750 and 630, our mental stop or alarm should be at 720 on the upside and 660 on the downside. When RUT trades pass these alarms, we should reassess the situation and be ready to adjust or close this trade.

As you can observe from the chart below, our alarm at the 720 level is also the prior highs, which now acts as immediate resistance. For support, we are looking at the 650 level since it was the prior lows.

How we will adjust when the time comes all depends on the market conditions then. Hopefully we don’t have to adjust anything for May so we can keep most of the credit.

We’ll be in touch.

Gary

Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com