***Closed***RUT iron condor initiated on 22 June 2009
17 July 2009: Options expired worthless
RUT (Russell 2000 Index) Iron Condor initiated on 22 June 2009
Trade Type: High Probability, Low Reward Iron Condor
Trade Summary
17 July 2009
RUT at 519.22
-1 days to Jul expiration
Action: Do nothing, let remaining options expire worthless.
Profit or loss: +$60 per entry.
Analysis
Well, we were not able to sell another put spread to collect more credit. Nevertheless, we are still profitable with this trade albeit a smaller profit than what it should be.
In summary, we initiated this trade on 22 June for $200 credit per entry. On 8 July, we closed the put spread on the back on a falling market to protect our trade for $140 debit. This leaves us with $60 in credit which we’ll keep today since the remaining call spread expired worthless. A profit of $60 on a margin of $800 gives us a 7.5% returns on investment. Not fantastic profit by our standard but a profit nonetheless.
Good trading,
Gary
*****Trade History*****
8 July 2009: Close put spread (index iron condor)
RUT (Russell 2000 Index) Iron Condor initiated on 22 June 2009
Trade Type: High Probability, Low Reward Iron Condor
Trade Summary
8 July 2009
RUT at 475.13 (–9.11)
8 days to Jul expiration
Action: Close put spread
Buy to close RUT Jul 450 Put
Sell to close RUT Jul 440 Put
For a net price of $1.35-1.40 debit or better.
Analysis
When it comes down, it comes down fast. For the past few days, the market had been trading range-bound, which is good for our positions. Now it seems that the down trend is beginning to gather strength. There are many different theories on why the market is behaving the way it is behaving. It really depends on what you believe in.
Since the start of the rally, I’ve been skeptical about its sustainability. It is likely that we’ll move on a little lower in the coming days to weeks. Of course, the earning season casts another layer of uncertainty for the coming weeks.
Whatever the reason behind the move, we have to remain nimble and adjust our risk exposure accordingly.
Our mental stop of 480 has been breached in a very quick fashion. Will it go further south? Or will it bounce up tomorrow? Nobody knows for sure. The fact is, at its current level, we ought to protect our profit and reduce our risk. By closing the put spread, we are eliminating all our downside risk and locking in a small profit.
We may sell another put spread at a lower strike to enhance our profit if the market takes a turn up or shows signs of a turning. As it is now, there is a 50/50 chance that it will bounce up or fall further down.
We’ll be in touch and should there be a suitable put spread for us to roll lower, we’ll inform you immediately.
Good trading,
Gary
*****Trade History*****
22 June 2009: Initiated new iron condor (index iron condor)
RUT (Russell 2000 Index) Iron Condor initiated on 22 June 2009
Trade Type: High Probability, Low Reward Iron Condor (index iron condor)
Trade Summary
22 June 2009
RUT at 497.32 (-15.40)
24 days to Jul expiration
Action: Sell a new iron condor for July expiration.
Sell to open RUT Jul 550 Call
Buy to open RUT Jul 560 Call
Sell to open RUT Jul 450 Put
Buy to open RUT Jul 440 Put
For a net price of $2.00-2.05 credit or better. [All TOS autotrade participants were filled at $2.00 credit.]
Net margin required: $800 per entry
Analysis:
This is the first trade for July. We have been queuing for this trade for the past few trading sessions but we haven’t been able to get a good fill. We finally get filled today.
This trade has a delta of -0.10 at the moment, which is very neutral. We are risking $800 to make a potential $200. This gives us a risk/reward ratio (R3) of 4.00. With such a high R3, we will have to be nimble with our risk management.
Looking at the P&L chart below, our breakeven points are 552 on the upside and 448 on the downside.
As such, we will set up our mental stop at 520 on the upside and 480 on the downside. We should be ready to adjust our positions if the RUT trades pass these stops.
We are continuing to scout for new trade for July. Hopefully we can get a few more trades before all the time premiums disappear.
Good trading,
Gary
