MarketNeutralOptions.com

15 Apr 2009: Close Trade

Trade Summary

RUT at 454.04 (+0.83)
1 days to Apr expiration.

Buy RUT Apr 490 Call
Sell RUT Apr 500 Call
Buy RUT Apr 360 Put
Sell RUT Apr 350 Put

For a net price of $0.25 Debit or better. [All TOS auto-trade participants were filled at $0.25 debit.]
Profit or Loss: +$55 per entry.

Trade Analysis

This iron condor obviously didn’t quite work out the way we envisioned on 23 Mar 2009. On hindsight, we really don’t need to do the roll adjustment on 2 Apr. If we didn’t do the roll on 2 Apr, we would have profited easily double the amount now. Well, everything is 20/20 on hindsight. We had a plan and a set of rules and we try our best to follow them to keep ourselves safe.

Even though this iron condor is not as profitable as we like it to be, it is after all still profitable. We initiated this trade on 23 Mar for $235 credit per entry. We rolled the call spread upwards by 20 points on 2 Apr for $155 debit per entry. And today, we closed the entire trade for another $25 debit per entry. In summary, we profited $55 credit per entry.

On a margin of $765 per entry, that is about a 7.19% return. Not something to brag about but we are still happy with a profit no matter how small.

It is difficult to predict where the market will go next. A pullback is imminent but to go short in such a bullish environment does not seem like a great idea too. We’re trying to setup a few pretty wide iron condors with decent returns for May.

We’ll keep you posted.

Good trading,

Gary

2 Apr 2009: Roll Call Spread

Trade Summary

RUT at 452.69 (++23.53)
14 days to Apr expiration.

Buy RUT Apr 470 Call
Sell RUT Apr 480 Call
Sell RUT Apr 490 Call
Buy RUT Apr 500 Call

For a net price of $1.50-1.55 Debit or better. [All TOS auto-trade participants were filled at $1.55 debit.]

Trade Analysis

A more than 5% move in 1 day is not the norm. But this is not normal times as President Obama said at the G-20 summit. Indeed, this abnormal move in the market naturally causes some abnormal stress in our positions.

The RUT shoots up more than 5% and stays up there for the entire day. It crosses our mental stop of 440 in a matter of minutes! We’re not too sure if this rally is for real but generally we’re always skeptical about a long daily candle on the chart. Nevertheless, the market is euphoric with the relaxation of the mark-to-market rule and the G-20 summit.  We’re not to sure how long this rally will last or is this really the end of the worst as Jim Cramer claimed?

We do know that our trade is getting more risky as the RUT comes closer to our short strike and we are not taking any chance.

With this roll, we are now short Apr 490 call and long Apr 500 call. We collected $2.35 credit on 23 Mar and today we gave back $1.55 debit. So we are now still positive with $0.80 in credit for every entry we entered.

We hope we don’t have to do another roll because having to make another adjustment will almost definitely make this trade a loser.

We still have about 2 weeks to expiration. We will continue to monitor our positions and inform you accordingly if actions are required. As we all should know, many things can happen in 2 weeks. Currently the market is very news-driven. Q1 earnings are coming up and we do expect quite a ride again. In fact, the VIX hasn’t really drop by much despite the massive rally we have today. So, we shall see what happens next.

Good trading,

Gary

23 Mar 2009: Initiated trade

Trade Summary

RUT at 416.94 (+16.83)
24 days to Apr expiration.

Sell RUT Apr 470 Call
Buy RUT Apr 480 Call
Sell RUT Apr 360 Put
Buy RUT Apr 350 Put

For a net price of $2.35-2.40 Credit or better. [All TOS auto-trade participants were filled at $2.35.]
Net margin required: $765 per entry.

Trade Analysis

This is our first “real” trade for April so far. The first RUT call spread was aborted because most people can’t get it filled at the target price, so that was a “no-count”. The market has been erratic and unpredictable. I don’t mean to say that the market has been predictable at all, what I mean is that the volatility that we’re seeing in the market is making every position seems very risky. As such, we are still in our cautious mode. We will trade lightly (less entries than normal) and quickly (lock in a decent profit in the soonest time possible).

For this trade we’re risking $770 to make $230. That leaves us with a risk/reward ratio (R3) of 3.35. This means that we are risking $3.35 to make a dollar. As you can see on the P&L chart below, we have a probability of slightly more thab 70% to be profitable with this trade. This iron condor also has a slightly negative delta of -6.31.

Our breakeven points are 472.3 on the upside and 357.7 on the downside. Since this is a high R3 iron condor, we will have to be pro-active in managing our risk. We will set our mental stop at 440 on the upside and 390 on the downside. This means that we will be ready to adjust this trade when the RUT trades past 440 or 390. These mental stops are 30 points away from our short strikes. This will allow us enough time to reassess the market and decide on our adjustment options.

We have a 110-point-wide iron condor for $230 with 24 days to expiration. We believe this is a good trade that will be able to show profits rather quickly as long as the market doesn’t make 3-4% moves everyday.

We hope to initiate a few more set-ups for Apr in the coming days. It may be wise to wait and see what happens when the dust settles in the next few days. Hopefully we can have a clearly idea on support and resistance that work.

Good trading folks!

Gary

Past Trades Iron Condor, RUT