Recapping the March 7th Couch Potato Market Summary "... The normal pattern is for prices to pullback from the overbought conditions â€“ this is the ideal scenario for us to relieve the pressure on our short calls. But similar to what happened at the end of last summer; an overbought rally can continue indefinitely, we need to see how this plays out..."
Stocks will retrench from the overbought level, the questions is whether the timing will bring relief to our MDY Call spread? Whatever the market decides to do, we need to honor our exit plan. Losses are an inevitable part of all trading strategies, and with iron condors it is absolutely critical to keep a loss on one trade from devouring months of hard earned gains.
MDY Position Update
Listed below is the status of our MDY Iron Condor trade as of Monday, March 8th. This position has been open for 14 days:
The entire position is $1,660 in the red
MDY closed at $140.26
30-day historical volatility and implied volatility are extremely low - implied volatility is at its' 52-week low which is considered bullish
MDY is priced ABOVE its' current 14-day EMA (see MDY chart down below)
MDY is trading ABOVE its' 20-day Bollinger Band SMA, and 50-day simple moving average (see MDY chart)
MDY is still well ABOVE its 200-day simple moving average (see MDY chart)
Relative Strength Indicator (RSI) is EXTREMELY bullish (See MDY chart)
Moving Average Convergence/Divergence (MACD) is EXTREMELY bullish (See MDY chart)
MDY Bear Call Spread
This spread is $2,650 in the red (see tables below)
Our $139 strike price short call delta is .5733 (43% probability this position will be profitable)
MDY Bull Put Spread
We are immediately closing out the initial Bull Put spread for an approx. $990 gain (see tables below)
MDY Risk Analysis
Since we are closing out the short $127 strike put, the only risk we have to manage is the $139 strike price sold call. The risk associated with the short call will be evaluated and resolved based on the Exit Plan.
The rules for exiting the MDY Bear Call spread are:
Anytime the market maker is willing to accept a limit price of less than .11 on one of the short calls, buy back all the short contracts and sell the long positions on the same spread.
If the delta associated with the short call rises to .65 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 Bear Call spread contracts expire worthless and we keep the entire sold premium for any open contracts where the short strikes are not threatened.
We initiated the MDY Iron Condor as a separate order with four legs . As mentioned above we are closing out all the Bull Put spread contracts. The Bear Call spread will be closed out as a separate order following the Exit Rules described above.
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.