Thursday the S&P 500 registered a bearish "distribution day", which is the first clear indication of institutional selling in weeks. The SPY is still trading within the upper and lower bull channel trend lines and one day of selling amongst institutional investors is definitely not enough to suggest the uptrend has ended. But some folks are detecting a change to bearish sentiment beginning to gain momentum.
Listed below is the status of our SPY Iron Condor trade as of Thursday September 24th. This position has been open for 31 days:
The entire position gained $1,660 this week - to $2,120 in the black
SPY closed at $105.01
30-day historical volatility is stable, but implied volatility is edging higher
SPY closed exactly at its 14-day EMA (see SPY chart down below)
SPY is still trading above its 20-day Bollinger Band SMA (see SPY chart)
SPY is well ABOVE its 200-day and 50-day simple moving averages (see SPY chart below)
Relative Strength Indicator (RSI) has turned neutral (see SPY chart)
Moving Average Convergence/Divergence (MACD) is turning bearish (see SPY chart)
Bear Call Spread
We initiated the SPY Iron Condor trade on August 26h and closed out the First Bear Call spread at $980 profit on September 2nd (see tables below).
On September 13th we recommended re-entering the call credit spread except for trading the September Quarterly option series instead of the regular monthly options. We are recommending closing out this entire spread today - for an approx. $340 profit (see tables below).
Bull Put Spread
We recommended closing the Bull Put Spread at $800 profit on September 10th (see tables below)
The "Risk Analysis" section of the previous Couch Potato article stated "... what we would prefer is that the prognosticators expecting a correction get their wish which would relieve some of the pressure on our $107 short call". The market cooperated and we need to take advantage of the opportunity to close out our open positions and retain our profits from the September Condor spreads.
As mentioned above we are recommending closing out all of the remaining Bear Call spread option contracts. After the closing trade, we will have taken our money off the table and the September Iron Condor is no longer at risk.
The "Exit Plan" section of the previous Couch Potato commentary stated"... Let us closely watch this spread; if the unrealized loss threatens to wipe out the profits from the initial trade, then we will probably roll the current spread out to the October option series." At this point it is not worth the risk to maintain the call spread and as stated above, we recommend immediately closing this position.
Regular readers of the Couch Potato are aware that we constantly emphasize that the focus of our Iron Condor trading strategy is risk management and listening to and understanding what the market telling us. It is not necessary that we "outsmart" anyone and there is nothing "ingenious" about our trading strategy. Our success depends on being disciplined, managing our risks, and always having a trade ready regardless of whether the market moves up or down.
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.