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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

Past Trades

19 Feb 2010: Expiration

SPY (Standard & Poors Dep Rec) Iron Condor initiated on 19 Jan 2010

Trade Type: Low Probability, High Reward Iron Condor

Trade Summary

19 Feb 2010

SPY at 111.27 (+0.36)
0 days to expiration

Action: Do nothing, let remaining options expire worthless.

Profit or Loss: -$88 per entry.

*****Trade History*****

10 Feb 2010: Close Put Spread

SPY (Standard & Poors Dep Rec) Iron Condor initiated on 19 Jan 2010

Trade Type: Low Probability, High Reward Iron Condor

Trade Summary

10 Feb 2010

SPY at 106.78 (-0.45)
9 days to expiration

Action: Close put spread

Buy to close SPY Feb 112 Put
Sell to close SPY Feb 110 Put

For a net price of $1.77-1.78 debit or better.

Analysis

The breakeven point for this trade was 111.1 on the downside. After such a big fall, it seems more and more unlikely that the SPY can climb back up to 111 level in the coming 9 days. Technically we can wait for a couple more days before we make a decision on this trade. To put it another way, we are risking almost a dollar for a dollar, a 50% chance is enough to make this trade a good risk to undertake. However, the longer we hold on to this trade without the SPY climbing up back to 111 level, the bigger the loss we’ll suffer when we finally decide to close the put spread. As time value erodes, this put spread will cost more and more. Its full value at expiration will be $2.00 if both the options remain ITM.

After seeing how the rally fizzled out yesterday, we’re of the view that it’ll be better for us to close up the put spread at this moment and take the small loss before it gets bigger.

Good trading,

Gary

*****Trade History*****

19 Jan 2010: Initate Trade

SPY (Standard & Poors Dep Rec) Iron Condor initiated on 19 Jan 2010

Trade Type: Low Probability, High Reward Iron Condor

Trade Summary

19 Jan 2010

SPY at 114.59 (+0.95)
31 days to expiration

Action: Sell a new iron condor for Feb expiration.

Sell to open SPY Feb 117 Call
Buy to open SPY Feb 119 Call
Sell to open SPY Feb 112 Put
Buy to open SPY Feb 110 Put

For a net price of $0.90 credit or better.
Net margin required: $110 per entry

Analysis

This is our first trade for Feb. Our breakeven points are 117.9 on the upside and 111.1 on the downside. At current price, we have about 3.9 point of headroom for the SPY to go up and 2.9 points buffer for it to trade down. We have about 43.31% probability of success.

We’re risking $110 to make $90 for every entry. This gives us a risk/reward ratio of about 1.22. We’re still on the lookout for more new trades for Feb. Expect to have a few more trades in the coming days.

We’ll be in touch.

Good trading,

Gary

Past Trades Add new tag, Iron Condor, SPY