***Closed***RUT iron condor initiated on 21 Jan 2010
19 Feb 2010: Expiration
RUT (Russell 2000 Index) Iron Condor initiated on 21 Jan 2010
Trade Type: High Probability, Low Reward Iron Condor
Trade Summary
19 Feb 2010
RUT at 630 (+0.68)
0 days to Feb expiration
Action: Do nothing, let remaining options expire.
Profit or Loss: +$20 per entry.
*****Trade History*****
27 Jan 2010: Close Put Spread
RUT (Russell 2000 Index) Iron Condor initiated on 21 Jan 2010
Trade Type: High Probability, Low Reward Iron Condor
Trade Summary
27 Jan 2010
RUT at 612.58 (+0.42)
23 days to Feb expiration
Action: Close put spread
Buy to close RUT Feb 590 Put
Sell to close RUT Feb 580 Put
For a net price of $1.95-2.05 debit or better. [All TOS autotrade participants were filled at $2.00.]
Analysis
In just a short 1 week, the RUT had fell more than 20 points from its peak. It was a freefall for the whole week and the RUT breached our mentalstop. Sure, there is always a chance that the RUT may rebound soon and we can close up the put spread at a much lower price. However, it is equally (if not more) likely that the RUT will continue going down. If the latter is true, we can easily be seeing a loss for this trade.
By closing the put spread today, we’re eliminating all our downside risk. We will be able to get out at breakeven even if the RUT continues lower.
We’re watching our risk very closely.
Good trading,
Gary
*****Trade History*****
21 Jan 2010: Initiate Trade
RUT (Russell 2000 Index) Iron Condor initiated on 21 Jan 2010
Trade Type: High Probability, Low Reward Iron Condor
Trade Summary
21 Jan 2010
RUT at 630.98 (-8.43)
29 days to Feb expiration
Action: Sell a new iron condor for Feb expiration.
Sell to open RUT Feb 670 Call
Buy to open RUT Feb 680 Call
Sell to open RUT Feb 590 Put
Buy to open RUT Feb 580 Put
For a net price of $2.15-2.25 credit or better. [All TOS autotrade participants were filled at $2.15.]
Net margin required: $785 per entry
Analysis
This is our second trade for Feb. The RVX spiked nearly 9% today. We had been eyeing this RUT trade for a few days by now. However, we were not able to get it filled at a price we like. With the spike in RVX, we’re able to get a pretty good price today. But of course with higher price, we expect higher risk and the heightened risk is not difficult to see. For the second day in a roll, the market is suffering a major selloff. How much lower can the market go? Nobody really knows. The expectation of the trading environment is an uneven and volatile one for 2010. In fact, we can expect the market to be very sensitive to news in the media as well as government policies of major economies. In short, it is going to be challenging to navigate the market this year.
Our breakeven points for this trade is 672.15 on the upside and 587.85 on the downside with a probability of success of about 65%.
This iron condor has a delta of -0.95 which is very neutral. Since we’re risking $785 to make $215, we have a risk/reward ratio of 3.65. We will set up our mental stop at 30 points away from our shorts. This means that our mental stop will be at 640 on the upside and 620 on the downside. At current level, we are about 10 points away from either direction. We should be ready to adjust this trade when the RUT trades pass 640 or 620.
We’re hoping to put up another 1 or 2 trades for Feb. We’ll inform you as soon as anything materializes.
Good trading,
Gary
