The March 8th Couch Potato mentioned "...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..."
Our MDY options expire next week, time is running out and we need to adjust our risk exposure. At this point the focus is to limit potential losses.
MDY Position Update
Listed below is the status of our MDY Iron Condor trade as of Thursday, March 11th. This position has been open for 17 days:
The entire will be approx $1,460 in the red after trade adjustments
MDY closed at $142.07
30-day historical volatility and implied volatility are extremely 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
We are immediately closing out the initial call spread for an approx. $4,750 loss and following up with a TRADE ADJUSTMENT to roll up to a higher strike price call spread (see tables below) - After the trade adjustment the call spread(s) should be approx. $3,200 in the red
MDY Bull Put Spread
The March 8th Couch Potato closed out the initial put spread for an approx. $990 gain. We are following up with a TRADE ADJUSTMENT to roll up to a higher strike price put spread (see tables below) - After the trade adjustment the put spread(s) should be approx. $1,740 in the black
MDY Risk Analysis
Next week is option expiration and there is a scheduled FMOC meeting, therefore stocks prices can fluctuate wildly, continue to climb "a wall of worry", or retrench from overbought conditions. We will be prepared to react as necessary to limit further losses.
The rules for exiting the MDY credit spreads are:
Anytime the market maker is willing to accept a limit price of less than .05 on one of the short strikes, buy back all the short contracts and sell the long positions on the same spread.
If the delta associated with one of the short strikes rises to .55 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 option contracts expire worthless and we keep the entire sold premium for any open contracts where the short strikes are not threatened.
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.