***Closed***Initiate SPY Call spread to leg-into an iron condor
1 June 2009: Close Call spread
SPY (Standard & Poors Dep Rec) Iron Condor initiated on 27 May 2009 (Leg-in)
Trade Type: Low Probability, High Reward Iron Condor (leg-in) (ETF iron condors)
Trade Summary
1 Jun 2009
SPY at 94.77 (+2.2)
18 days to expiration
Action: Close call spread initiated on 27 May.
Buy to close SPY Jun 93 Call
Sell to close SPY Jun 95 Call
For a net price of $1.17-1.19 debit or better. [All TOS auto-trade participants were filled at $1.19.]
Profit or Loss: -$60 per entry.
Analysis
This trade is a wrong call, nothing more and we all have to pay for it. We were expecting a pullback so that we can sell a put spread at a good price to complete this iron condor. The opposite happened. Not only we can’t get a good price for a put spread to complete the trade, the call spread becomes a loser so quickly! The gap-up this morning kills this trade.
A roll up at this point doesn’t make much sense because we didn’t collect a lot of credit to begin with. Put spreads are cheap now, selling a put spread to collect more premiums and at the same time rolling up the call spread might have worked to a certain extent. BUT if we sell the put spread far enough to be safe for the next 2 weeks, we may end up with a high-risk iron condor with very low profit potential. On the other hand, if we sell a put spread with a high enough premiums (read near current SPY price), we may end up with a bleeding downside when the pullback eventually happens! As painful as it is, closing this trade to record a loss is the best option we have.
We collected $59 for every entry on 27 May and today we closed this trade for $119 debit. We lost $60 for every entry. The maximum loss for this trade was $141. I’m not certain about how the SPY will move in the coming days. If it continues going up, this trade can easily incur higher loss. This is a bad call, face it and move on.
Good trading,
Gary
27 May 2009: Initiate Call spread to leg-in to an iron condor
SPY (Standard & Poors Dep Rec) Iron Condor initiated on 27 May 2009 (Leg-in)
Trade Type: Low Probability, High Reward Iron Condor (leg-in) (ETF iron condors)
Trade Summary
27 May 2009
SPY at 90.44 (-0.88)
22 days to expiration
Action: Sell a new call spread to leg into an iron condor for June expiration.
Sell to open SPY Jun 93 Call
Buy to open SPY Jun 95 Call
For a net price of $0.59-0.60 credit or better.
Net margin required: $141 per entry
Analysis
First of all, let us apologize for sending so many email alerts just for this 1 trade. In a bid to send out the alert as soon as we possibly can, we made a silly mistake in the initial alert. We resend the same email without making the correction! We were quick in realising our mistake but we didn’t correct it! And so the third email. Luckily none of you would have entered the wrong trade because May options had long expired! Still, it could cause some unnecessary confusion and we apologize for that.
This is our 3rd trade for June. The market is seeing a pullback as we speak now. We wanted to do an iron condor straight instead of leggin-into one initially. However, we realized that the call spread is selling at a good price vis-a-vis the put spread. Furthermore, we have no idea of how far this pullback can go. We were aiming for the 86/84 put spread. But this spread is trading at only $0.38 credit. I believe that should the SPY go down lower in the next few days, we can easily get a much better price for this same put spread than what we can get now.
I hope we can complete this iron condor in the next few days for a good price.
For now, this call spread is a bearish trade. As long as the SPY doesn’t trade above 93 in the coming days, this trade is safe.
Since this iron condor is not completed, we don’t really know the breakeven prices and such. We will have a further analysis of this trade after we complete the put side.
Good trading,
Gary
