***Closed***RUT Iron Condor initated on 26 May 2009
18 June 2009: Let options expire worthless
RUT (Russell 2000 Index) Iron Condor initiated on 26 May 2009
Trade Type: High Probability, Low Reward Iron Condor (Index Iron Condor)
Trade Summary
18 Jun 2009
RUT at 521.98 (+20.40)
0 days to Jun expiration
Action: Do nothing. Let options expire worthless.
Profit or Loss: +$50 per entry.
Analysis
On hindsight, we could have profited more on this trade had we not done the roll on 1 June. However, taking on excessive risk is not our game and we should follow our trading rules as closely as possible. The rally on 1 June had threatened this trade and we had to roll to protect our position. The roll allowed us more headroom on the upside but reduced our potential profit.
In summary, we initiated this iron condor on 26 May for $2.30 credit, rolled the call spread on 1 June for $1.80 debit. This iron condor made a small profit of $50 per entry. On a margin of $770, this trade made a modest 6.5% for June.
We are trying to get filled some new trades for July as we speak. Talk to you again!
Good trading,
Gary
*****Trade History*****
1 June 2009: Roll call spread
RUT (Russell 2000 Index) Iron Condor initiated on 26 May 2009
Trade Type: High Probability, Low Reward Iron Condor (Index Iron Condor)
Trade Summary
1 Jun 2009
RUT at 512.98 (+20.40)
17 days to Jun expiration
Action: Roll up call spread.
Buy to close RUT Jun 540 Call
Sell to close RUT Jun 550 Call
Sell to open RUT Jun 560 Call
Buy to open RUT Jun 570 Call
For a net price of $1.80 debit or better. [All TOS auto-trade participants were filled at $1.80.]
Analysis
Our mental stop of 510 was hit after the market gaped up today. Most of the gains of today was achieved in the first 2 hours of trading. There are many theories on why the market behaves the way it does; the China PMI reading, GM bankruptcy (I thought that was a bad news??), consumers’ confidence, whatever… I’m not a stubborn bear but I don’t believe in the over optimistic bull. Fundamentally, not much has changed since March (or did I miss out on anything?). Earnings were bad, but better than expectations. But the fact is: it was bad. We’re not seeing companies making better profits. The stimulus hasn’t really fully reached the market. So what is fueling this rally? Again, there are many theories on this.
While it is interesting to keep an open mind and listen to all the talking heads on CNBC, it doesn’t really matter to making profits on our trades.
This RUT iron condor was a high risk/reward ratio (R3) trade. The RUT trades as high as 522 intra-day. We were short the 540 call and our mental stop was at 510.
Looking at the way the raging bulls were running, we should be running for cover. We ain’t no bulls nor bears, we’re neutral! Still, it’ll be wise for us to move a little to protect our positions.
We follow as closely as possible the rules we set up when we were clear-minded. The rules say we’ll be better off rolling our call spreads up to allow more breathing space.
By doing this roll, our maximum profit potential has been reduced to $50 per entry. We collected $230 in credit when we initiated this trade on 26 May and today we rolled it for $180 debit. Another roll and this trade will be a loser. We’re now short 560 call. So we’ll set up our mental stop to 530, which is 30 points away from our short call.
We are about 2 weeks away from expiration. As long as the RUT trades below 530 for the next 2 weeks or so, we’ll be able to make a small profit with this trade.
We shall see how far the bulls can run.
Good trading,
Gary
26 May 2009: Initiate Trade
RUT (Russell 2000 Index) Iron Condor initiated on 26 May 2009
Trade Type: High Probability, Low Reward Iron Condor (Index Iron Condor)
Trade Summary
26 May 2009
RUT at 496.5 (+18.80)
23 days to Jun expiration
Action: Sell a new iron condor for June expiration.
Sell to open RUT Jun 540 Call
Buy to open RUT Jun 550 Call
Sell to open RUT Jun 440 Put
Buy to open RUT Jun 430 Put
For a net price of $2.30-2.40 credit or better. [All TOS auto-trade participants were filled at $2.30 credit.]
Net margin required: $770 per entry.
Analysis
This is our second trade in June. We have been trying to enter a RUT iron condor since last week but we simply can’t get any fill. Again we’re not too sure about the strength of this rally. Note that much of the rally was done during the first 2 hours of trading today. We have seen how strong the bulls can be in the past few weeks. But we’re also acutely aware of the potential resistance of the prior highs.
For this iron condor, we are risking $770 to make $230 per entry. This gives us a risk/reward ratio of about 3.35. Based on the P&L chart below, we can see that we have about 70% chance of being profitable with this trade. Our breakeven points are 542.3 on the upside and 437.7 on the downside.
RUT iron condor 26 May 2009
Since this is a high risk/reward ratio (R3) iron condor, we should watch our risk more closely. We shall set up out mental stop at around 510 on the upside and around 470 on the downside. We should be readying ourselves to make some adjustments when the RUT trades past 510 on the way up or 470 on the way down.
There is a pretty good chance that the market will be trading range bound for the coming days. As such, we are pretty happy with this trade. We are also looking at 1 or 2 more trades for June.We will inform you real-time as soon as we can get a fill on the trades we’re eying at the moment.
Good trading,
Gary
