***Closed***SPY (Standard & Poors Dep Rec) Iron Condor initiated on 22 Apr 2009
19 May 2009: Expiration notice
Trade Type: Low Probability, High Reward Iron Condor
Trade Summary
19 May 2009
All remaining options expired worthless on Friday.
Profit or Loss: +$23 per entry.
Analysis
As expected, the remaining put spread expired worthless last Friday. So this SPY iron condor made $23 per entry before commission charges. Not fantastic returns really considering the potential. Nevertheless, we made about 21.7% [23/106 X 100%] profit from this trade. We’re very glad to remain profitable thus far despite the volatility we’re seeing the market. Let’s try to grab a few more of such trades for June! We’re scouting for them.
Good trading,
Gary
13 May 2009: Close call spread
Trade Type: Low Probability, High Reward Iron Condor
Trade Summary
13 May 2009
SPY at 88.89 (-2.07)
2 days to expiration
Action: Close call spread for SPY iron condor initiated on 22 Apr.
Buy to close SPY May 89 Call
Sell to close SPY May 91 Call
For a net price of $0.70 debit or better. [All TOS auto-trade participants were filled at $0.7168.]
Profit or Loss: +$23 per entry.
Analysis
We are taking advantage of the pullback today to close up the potentially dangerous call spread that we have. In fact, this call spread was very much ITM for many days and we’ve been waiting for this pullback that we’re seeing today. This iron condor was almost a loser just a few days ago. We almost wanted to close it for a loss when the SPY was trading at recent highs. We were down by almost $0.50 for each trade we entered. Fortunately, we didn’t close it prematurely for a loss and decided to wait out for a few more days.
Our patience and guts paid off pretty well. Although the profit is by no means huge, remember that this iron condor was a loser just a few days ago. A small profit is always better than a loss.
Why don’t we wait for a few more days? Well, we took a risk by waiting for this pullback. Now that the pullback is underway, we don’t want to take any more risk. By close the call spread we’re eliminating any possible upside risk. Technically, if you pull out a SPY daily, you’ll see that the SPY is hitting its 20-day MA. It could close on it today. We’re not sure how strong the 20-day MA can act as a support. It could easily spark off a rally tomorrow if it turns out to be a good support for the SPY. We certainly don’t want to be in a situation where we see a loser-turned-winner-turned-loser again. Better be safe than sorry. Take our (small) profit and run!
We expect the put spread to expire worthless come Friday expiration. Although possible, it is unlikely the SPY will go to 80 in the coming 2 days.
We entered this trade on 22 Apr for $0.94 credit and we closed the call spread for $0.71 today. If the put spreads expire worthless come Friday, we’re looking at a profit of $23 per enter. That works out to be about 21.7% profit [23/106 X 100%]. Not too bad.
We still have the RUT iron condor currently open. As expiration draws nearer and our spreads so far OTM, it is getting really difficult to close up the trade. In the worst scenario, we may have to let it expire come Thursday. We’re still hoping to close it before Thursday. We’ll be in touch.
Good trading,
Gary
*****Trade History*****
22 April 2009: Initiate Trade
Trade Type: Low Probability, High Reward Iron Condor
Trade Summary
22 Apr 2009
SPY at 85.84 (+0.78)
23 days to expiration
Action: Sell a new iron condor for May expiration.
Sell to open SPY May 89 Call
Buy to open SPY May 91 Call
Sell to open SPY May 80 Put
Buy to open SPY May 78 Put
For a net price of $0.94-0.95 credit or better. [All TOS auto-trade participants were filled at $0.94.]
Net margin required: $106 per entry
Analysis
This is our third trade for May and most probably the last since we’re only 23 days away from expiration.
The market seems very unsettled and uncertain right now. While it is uncertain where the market will head in the coming days, it is certain that option time premiums are decaying fast.
From the P&L chart below, you can see that our breakeven points are 89.94 on the upside and 79.06 on the downside with a slightly more than 50% probability of success. We are risking $106 to make $94 per entry. This gives us a risk/reward ratio (R3) of 1.13.
Since we’re risking almost a dollar for a dollar, we can afford to be more patient to wait for the time decay to do its magic. We will exit this iron condor trade once we can lock in a decent profit. On the other hand, our defense will be our mental stop. We should be readying ourselves to make adjustments when this iron condor trades higher than $1.25. As long as the SPY trades between these 10-point wide breakeven points for the next 2 weeks or so, we should have a pretty good profit to lock into.
As you know, the market is very news-driven currently. Bulls or bears can’t be really sure about what will happen tomorrow. It is likely that we will see a range-bound market if there isn’t any drastic news. We will keep a lookout on our open positions and keep you updated on any need for actions.
Good trading,
Gary
