***Closed***SPY iron condor initiated on 31 July 2009
17 Aug: Closed iron condor (ETF iron condor)
SPY (Standard & Poors Dep Rec) Iron Condor initiated on 31 July 2009
Trade Type: Low Probability, High Reward Iron Condor
Trade Summary
17 Aug 2009
SPY at 98.55 (-2.25)
4 days to expiration
Action: Close entire trade to lock in profit.
Buy to close SPY Aug 101 Call
Sell to close SPY Aug 103 Call
Buy to close SPY Aug 95 Put
Sell to close SPY Aug 93 Put
For a net price of $0.38 debit or better. [All TOS autotrade participants were filled at $0.38 debit.]
Profit or Loss: +$53 per entry
Analysis
We are closing this trade earlier to lock in the profit we have currently. Market sees a big drop today. Whether it will continue to go lower is uncertain at this point. At this point we judged that it will be a good idea to lock in whatever profit we have. Should the market go lower we still can profit from the SPY calendar that we’re still holding on.
We entered this trade for $91 credit per entry on 31 July. We closed this trade today for $38 debit per entry. We made a profit of $53 per entry with this iron condor. On a margin of only $109 per entry, we made a profit of 48.62%!
We hope to provide you with more of such profitable trades going into September.
Good trading,
Gary
*****Trade History*****
31 July: Initiated new iron condor (ETF iron condor)
SPY (Standard & Poors Dep Rec) Iron Condor initiated on 31 July 2009
Trade Type: Low Probability, High Reward Iron Condor
Trade Summary
31 Jul 2009
SPY at 98.95 (+0.28)
21 days to expiration
Action: Sell a new iron condor for Aug expiration.
Sell to open SPY Aug 101 Call
Buy to open SPY Aug 103 Call
Sell to open SPY Aug 95 Put
Buy to open SPY Aug 93 Put
For a net price of $0.91-0.92 credit or better.
Net margin required: $109 per entry
Analysis:
This is only our second trade for the month of August. Current market is not conducive to neutral traders like us. Market is extremely bullish for extended period of time. The recent rally is not something that happens often. Indeed, there seems that this rally lacks one very important ingredient; fundamental. There are numerous speculations on the reasons behind the rally including the controversial high frequency trading. The market has become so overbought at this point that it presents very high risk to chase the bull. Nevertheless, it looks unwise to be putting up a bearish stance now. We are expecting a pullback of significant magnitude pretty soon from this overbought market.
This trade has a delta of -4.3 which will benefit slightly from the expected pullback. We are risking $109 to make $91 for every entry we enter. This gives us a risk/reward ratio of 1.2. This means that we’re risking $1.20 to make $1.
This iron condor has a breakeven point of 101.91 on the upside and 94.09 on the downside. As long as the SPY trades between these 7.82 points for the next 2 to 3 weeks, we should expect to lock in a pretty decent profit.
As you can see from the P&L chart below, there is a 47.32% chance of success for this iron condor.
Since this is a nearly 1:1 iron condor, we can be slightly more patient to wait for the trade to work out. We are expecting a volatile market with huge swings in either direction. As such, we will try to close up this trade to lock in profits whenever it is sensible to do so.
We’ve been trading very lightly for the past few months. We’re in a cautious mode currently. Market can make wild swings and hurt our positions in a very quick time. We are constantly trying to find high probability trades to boost our profits.
Good trading,
Gary
Why do you use iron condors in a market like this? Why not use a calendar spread? They move slower and are so much less expensive to adjust.
Hi Don,
Yes we do calendar spread when volatility is low and looks set to go higher. However, we still depends on iron condor for income trades. We’re trading lightly now due to the uncertainty in the current market. It seems like a bull market now but we believe the market is extremely overbought and we don’t want to be left high and dry chasing a bull.
Hi Don,
Yes, we’re keeping a close look at our current positions. The market usually takes a while to stabilize after the FOMC announcement.