The December 6th Couch Potato "Market Summary" stated that "...A lot of analysts believe that money managers are showing nice profits from the surge off the March lows and their priority at this point is to lock in profits." Recent stock market activity would seem to confirm this statement considering the difficulty with the SPY ETF getting past the $111 level and strong technical resistance at the $112 Fibonacci 50% retracement level. At the very least the SPY is continuing to trade within upper and lower bull channel trend lines.
Listed below is the status of our SPY Iron Condor trade as of Tuesday, December 8th. This position has been open for 27 days:
The entire position is $1,970 in the black
SPY closed at $109.61
Both 30-day historical volatility and implied volatility numbers are still stable - both volatility numbers are near 52 week lows, which is considered bullish
SPY dropped BELOW to its 14-day EMA (see SPY chart down below)
SPY is still 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 giving a bearish signal (See Spy chart)
Bear Call Spread
We are closing out the entire call spread for an approx. $1,200 profit (see tables below)
Bull Put Spread
This spread is $770 in the black (see tables below)
$103 strike price short put delta is -.1069 (89% probability this trade will be profitable)
Since we are closing out the short $115 strike call, the only risk we have to manage is the $103 strike price sold put. The risk associated with the sold put will be evaluated and resolved based on the Exit Plan.
The rules for exiting the Bull Put spread are:
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 hold out for a .05 bid.
If the delta associated with the short put rises to .25 we will look to close out this spread (buy the short contracts, sell the long).
On option expiration day, if rules 1 and 2 above have not been activated, let the Bull Put spread expire worthless and we keep the entire sold premium for any open contracts where the short strikes are not threatened.
We initiated the SPY Iron Condor as one order with four legs. As mentioned above we are closing the Bear Call spread. The Bull Put spread will be closed out as a separate order following the Exit Rules described above.
The December 6th Couch Potato "Final Comment" section stated"...The best-case scenario for us is another week similar to the past two so that we can close our position early and lock in gains." The recent market pullback allowed us to close our call spread. Now we need stocks to rise a bit so that we can exit our Bull Put spread.
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.
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