RUT (Russell 2000 Index) Iron Condor initiated on 22 Dec 2008
Trade Closed on 12 Jan 2009.
12 Jan 2009
RUT (Russell 2000 Index) Iron Condor initiated on 22 Dec 2008
Trade Summary
RUT at 475.26 (-6.04)
3 days to Jan expiration.
Buy RUT Jan 540 Call
Sell RUT Jan 550 Call
Buy RUT Jan 390 Put
Sell RUT Jan 380 Put
For a net price of $0.15 Debit or better.
Profit or Loss: +$75 per entry.
Trade Analysis
This iron condor is currently trading on the cheap and we believe it is a good idea to close up this trade at this moment and lock in our profits. Very rarely will we let the RUT expire worthless due to the fact that RUT options expire on the third Thursdays and its settlement price will only be made known on the next day.
It is a pity we didn’t manage to earn more profit from this trade. This was a beautiful iron condor, when it comes to yield, it is almost perfect. On hindsight, we shouldn’t have done the roll on 6 Jan. Everything is clear on hindsight isn’t it? We did what we thought was necessary then. There was indeed a risk that the RUT could continue to go higher and hence inflict a much greater loss. We trade according to our plans and roll our spreads according to market conditions.
Despite giving up half of our credits to do the roll, this iron condor is still a winner. In short, we made $75 with a margin of $795. This gives us a 9.43% returns. As such, this trade will cost you $9.43 for your Jan bill.
Although our roll has cost us a chunk of our profits, we should not be hesitant to adjust our trades in the future because of this. When the time comes for us to adjust to save the trade, we should. We cannot rely on hope when the market is going against us. The best options traders are usually the best risk managers. When you manage your risk well, profits will come naturally. So, always think in terms of risk and how much you can lose, not profits.
We currently have only 1 more open trade for Jan. We are trying to close it for a good fill to maximize our profit from that trade. We are also looking at some possible set-ups for Feb. General market sentiment is down due largely to the poor earnings that we are going to see. So we’re expecting a spike in IV in the coming days. We may leg in the spreads to form an iron condor. We shall see what happens next.
Good trading,
Gary
*******************Trade History**********************
6 Jan 2009
RUT (Russell 2000 Index) Iron Condor initiated on 22 Dec 2008
Trade Summary
RUT at 515.68 (+10.60)
9 days to Jan expiration.
Buy RUT Jan 530 Call
Sell 2X RUT Jan 540 Call
Buy RUT Jan 550 Call
(enter as a butterfly trade)
For a net price of $1.15 Debit or better.
Trade Analysis
Is this rally for real? How will the market react when earnings start coming up? Will the market rally on bad earnings? Despite all the bad news, the market is showing a very strong rally. Talk about a difficult market to trade!
The RUT is surpassed our mental stop for a while by now. By the way it is moving today, we believe it will be appropriate to protect our trade by rolling our call spread by 10 points. After this roll, we will be short 540 call and long 550 call. However, the roll comes with a price, we will reduce our credit collected from $2.05 to $0.90. Our new breakeven point on the upside is 540.9.
As such, we will reset our mental stop to 520. Again we should be prepared to either close up the position or roll up further when the RUT trades pass 520.
We will be in touch.
Good trading,
Gary
********Trade History********
22 Dec 2008
RUT (Russell 2000 Index) Iron Condor initiated on 22 Dec 2008
Trade Summary
RUT at 464.58 (-21.68)
24 days to Jan expiration.
Sell RUT Jan 530 Call
Buy RUT Jan 540 Call
Sell RUT Jan 390 Put
Buy RUT Jan 380 Put
For a net price of $2.05 Credit or better. [All TOS auto-trade participants were filled at $2.05.]
Net margin required: $795 per entry.
Trade Analysis
This is our first trade for the new year ahead. As expected, trading volume is low and thus it will not be easy to get fills. We have another trade waiting to be filled at the moment. We expect the market to be less volatile for the coming week due to the holidays. However, we are in the view that market volatility will return in the new year when more bad news on the last quarter of 2008 is revealed. Therefore, it will be advisable to keep our positions manageable and trade lightly. We are looking at perhaps not more than 2 more trades for Jan.
This RUT iron condor has a 140-points wide profitable range. Each iron condor now carries a delta of -1.42, which is very near neutral. The breakeven points are 532.05 on the upside and 387.95 on the downside. For this trade, we are risking $795 to make $205. This gives us a risk/reward ratio (R3) of 3.88. We have a probability of 74.07% of success.
Since we are short the 530 call and 390 put and we have a R3 of 3.88, we will have to actively monitor this position to avoid a massive loss. We will set up our mental stop at 490 on the upside and 430 on the downside. These 40-point buffer will provide us with time and space to plan our adjustment strategy when these levels are breached.
We learned a hard lesson in December for not closing our trades for small profits. We will close to lock in our profit when the time is appropriate.
Have a great holiday ahead! Merry Christmas and a prosperous new year!
Gary
Founder, Head Trader of MarketNeutralOptions
www.MarketNeutralOptions.com
