***Closed***SPY Iron Condor initiated on 25 Mar 2009
15 Apr 2009: Close call spread
Trade Summary
SPY at 84.53 (+0.17)
2 days to Apr expiration.
Buy SPY Apr 85 Call
Sell SPY Apr 87 Call
For a net price of $0.62 Credit or better. [All TOS auto-trade participants were filled at $0.62.]
Profit or Loss: +$30 per entry.
Trade Analysis
I guess we pulled the trigger a little too soon. SPY is currently in the red and this same call spread is currently trading at $0.53. Well, such stuff happens from time to time. If the SPY continues going up, we’ll be patting ourselves on the shoulder and be happy with our timing.
This trade isn’t as fantastic as we like but at least it is profitable. We initiated this iron condor for $92 per entry on 25 Mar 2009, and we’re closing the call spread for $62 debit per entry. This leaves us with a profit of $30 per entry. Now, SPY options expire only on Friday (2 more days) so in essence this trade isn’t fully closed yet. However, because we are still short Apr 75 put and long Apr 73 put and the current SPY is trading at about 84, it is very unlikely that the SPY will reach 75 in the next 2 days. 100 SPX points in 2 days is not impossible. But it is unlikely.
Anyway, we will still be keeping a lookout on the trade until it expires worthless come Friday.
Actually we could have waited until tomorrow to close the call spread but we thought it is more wise to lock in our profits before it slips through our fingers. At the current level, it is very easy for the SPY to cross the 85 level in matters of minutes! So better safe than sorry. Since we have a profit, grab it and move on.
We are looking for new trade for May as we speak. We hope to get a few setups fill in these few days.
Good trading,
Gary
****************Trade History********************
25 Mar 2009: Initiated trade
Trade Summary
SPY at 81.80 (+1.20)
23 days to Apr expiration.
Sell SPY Apr 85 Call
Buy SPY Apr 87 Call
Sell SPY Apr 75 Put
Buy SPY Apr 73 Put
For a net price of $0.92-0.94 Credit or better. [All TOS auto-trade participants were filled at $0.92.]
Net margin required: $108 per position.
Trade Analysis
This is our second trade for the month of April. Our collective market view is range-bound for the coming weeks and bearish for the coming months. While it is yet to be seen if this current rally is a mere dead-cat bounce or a prelude to the coming bullish sentiments, we believe we could be seeing a down day soon. Many traders believe that a retest of the recent lows is inevitable. Right now, it’s too late and risk is too high to go long. But it’s pretty nerve wacking to go short too. We believe the market could be trading in a pretty tight range for the coming days. This is perfect for our neutral strategies.
For this iron condor, we are risking $108 to make $92. This gives us a risk/reward ratio (R3) of 1.17. This is a low-probability, high reward type of iron condor. Take a look at the P&L chart below, you’ll see that there is currently a probability of 50.92% that this trade will make money. We are slightly negative on the delta too. Each entry has a delta of -3.98.
Our break even points are 85.92 on the upside and 74.08 on the downside. We have about 23 days to expiration for this 10 SPY-point-wide iron condor.
Since this is an almost 1:1 risk/reward iron condor, we can afford to be more patient with trade. However, in this fast-moving market, it will be a good idea to have a clear damage control should the trade doesn’t work out the way we envisioned. Since we have collected $92 for each entry we put up, we shall set up our mental stop at about $1.40 to $1.50. We should be ready to adjust this trade, either by closing the trade or rolling the spread, when this position is trading at $1.40 to $1.50. Buying back at these prices will make this trade a loser of about $$48 to $58 per entry. Of course, we hope we don’t have to suffer a loss but it is always wise to be prepared.
Good trading,
Gary
