Market Summary
Eventually, the concept of fewer jobs lost will not be good enough and the U.S. economy will need to create net job growth, but the question is who will provide these jobs? It is being suggested that the White House is buying into the Wall Street proclamation that the deficit, not unemployment, should be the government's top economic priority. It should not be surprising for President Obama to succumb to the Wall Street view since his top domestic policy advisor worked for a hedge fund and his Treasury Secretary came from the New York Federal Reserve. The White House appears willing to allow unemployment to increase further or stay at high levels.

According to the economic consulting firm IHS Global Insight - just $144 billion of the $787 billion stimulus bill Congress passed earlier this year went to direct infrastructure spending. China late last year, by comparison, almost half of the emergency spending Beijing approved - $585 billion spread over two years - was directed at projects that accelerated China's massive infrastructure build-out and is creating jobs that have an immediate economic impact.

The Small Business Administration has said that small businesses created 64% of new jobs in the past 15 years. But Richard Posner, a law professor at the University of Chicago and a federal circuit judge commented "Until small businesses are able to borrow, we can't have a robust economy, because that's your largest source of jobs." However, banks are hesitant to make new loans until they've cleared off the bad debt from the housing boom.

Position Update
Listed below is the status of our SPY Iron Condor trade as of Friday, November 27th. This position has been open for 15 days:
The entire position is $1,030 in the black
SPY closed at $109.57
Both 30-day historical volatility and implied volatility numbers are stable both volatility numbers are near 52 week lows, which is bullish
SPY is priced close to its current 14-day EMA (see SPY chart down below)
SPY is trading ABOVE its 20-day Bollinger Band SMA, and 50-day simple moving average (see SPY chart)
SPY is well ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is neutral (See Spy chart)
Moving Average Convergence/Divergence (MACD) is beginning to turn down (See Spy chart)

Bear Call Spread
This spread is $750 in the black (see tables below)
$115 strike price short call delta is .1356 (86% probability this trade will be profitable)

Bull Put Spread
This spread is $280 in the black (see tables below)
$103 strike price short put delta is -.1820 (82% probability this trade will be profitable)

Risk Analysis
The November 22nd Couch Potato Risk Analysis section stated "...SPY is having difficulty making a convincing break through the $111 level. If this index advances past $111, the 50% Fibonacci retracement level from the March 2009 low to the index all-time high will probably provide technical overhead resistance at $112. If there is a market correction, the most obvious SPY support level should be the 50-day SMA which is at approx. $107" The SPY ended the week virtually unchanged from where it ended the prior week and the statement related to the risks associated with our Iron Condor is still valid.

Also, last week we said "... the stock market's upward momentum has become more deliberate. And it appears that it might require an extraordinary market reaction to drive the SPY ETF to threaten our $115 short call prior to the December option expiration date. Since the beginning of October, the SPY has been trading within upper and lower bull channel trend lines. Our $103 short put is near the lower channel and as more analysts predict a market pullback, there is a higher probability that the short put will be encroached on (compared to the short call)." As mentioned above this analysis is still valid as the circumstances have not changed since last week.

Exit Plan
We will follow the standard exit plan for our Iron Condor:

Anytime the market maker is willing to accept a limit price of less than .11 on one of our short strikes, buy back all the short contracts and sell the long positions on the same spread. However, if it is a few days prior to the expiration date, we may be able to hold out for a .05 bid.

If one of our short strikes is penetrated (closing price above our short call or below the short put) AND the delta rises to .65 we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself and remove the sense of urgency. If one of our short strikes has been violated and there is no price reversal, we cut our losses and live to fight another day.

We initiated the SPY Condor as one order with four legs. Exiting this position prior to expiration we will probably “leg out” of the trade by first unwinding either the bear call spread or the bull put spread; and close out the other side of the spread as a separate order. The timing of closing out each side of the Iron Condor is dependent on following our Exit Rules described above.

Final comment
The November 22nd Couch Potato Final Comment mentioned "If our Iron Condor were the type of person who becomes paranoid when things go to well, they would be probably be going berserk right now. The current SPY price is virtually equidistant between our short strikes; volatility levels have diminished; and next week is a short trading week because of the thanksgiving holiday and should be relatively quiet considering many professional traders are taking time off. When traders return to work the first week of December our Iron Condor should have increased in value due to time decay (theta) related to the short strikes..." The Dubai debt story, reported increase in home sales, surging gold, and sinking dollar, etc. caused some market fluctuation; but the SPY essentially ended the week where it started and last week's comment is still valid.

Gregory Clay

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.